Full text of Commercial and Financial Chronicle : October 24, 1914 : Bankers' Convention Section, Vol. 99, No. 2574

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BANKERS' CONVENTION
SECTION
OF THE

COMMERCIAL & FINANCIAL CHRONICII
Copyrighted in the year 1914 by William B. Dana Company, in the office of the Librarian of Congress, Washington, D, C.

NEW YORK, OCTOBER 24, 1914.

Vol. 99.

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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 79 and 80.
THE CONVENTION AND PROBLEMS OF
THE DAY.
One might perhaps have imagined that the
convention of bankers, at Richmond, would have
devoted its public discussions primarily to consideration of those novel problems in finance and industry, which have been so suddenly thrust upon
this country by the European war. It is, however,
a striking proof of the magnitude, obscurity, and
baffling scope of these new problems, and of the
almost complete lack of precedent to guide us in
solving them, that the formal speeches at the convention did not undertake to grapple with them.
This seems to us to have been both wise and prudent; for in a very unusual degree our most experienced bankers and business men are moving
slowly in these matters, are taking little for granted,

No. 2574

and are trying to make sure of the ground into
which they are moving at one moment before they
plan the next step.
One may be sure that, in the conversation of the
Richmond delegates with one another, views were
freely exchanged on all these topics, and that,
through such private comparison of impressions
from all parts of the country, the bankers came
away with a clearer conception of the real situation
and of the general policies which must be pursued.
But that does not alter the fact that American bankers, like the American business men as a whole, are
feeling their way in this extraordinary situation.
Such problems as the meeting of our foreign indebtedness in the market for exchange, if our European creditors should choose on a larger scale
than hitherto to exact payment for maturities and
not to grant renewal; as the reopening of the stock
.
exchanges while the attitude of European investors
in our securities is still in question; as the financing of the cotton crop, of which so large a part may
remain unsold this season, and as the promoting
of our export trade, so that American industry may
gain in shipments, to new directions in the outside
world, what it has lost by war embargo on its usual
outside markets—these are questions which must
be slowly, patiently and prudently solved. The
most important forward step thus far taken in restoring financial stability is unquestionably the cooperative action of the banks of the United States
to meet immediate and present problems, like the
saving of New York City's foreign credit and the
insuring of payment on exchange for Our immediate accruing foreign indebtedness. Our banks
have already done, through this concerted and patriotic action—for concerted action of this sort did
involve to many banks large sacrifices in their ordinary lines of activity—all that the European nations have done through the direct intervention of
government, and in many cases more. That this
was accomplished here without the aid of government should distinctly enhance the subsequent
prestige of American finance.
Naturally, this aspect of the matter directed;the
open discussion of the Richmond convention tO the
impending problem of the introduction of the Regional banks under the new Federal Reserve law.

BANKERS' CONVENTION.

There can be little question that, had these Regional
banks been in active existence when the war broke
out, they would have helped very largely toward
simplifying the relief expedients; first, because of
the natural leadership of their officers and directors ;' second, because of their direct power in
the way of protecting and concentrating credit.
The banks have thus far acted individually or collectively. Now, however, it seems to be an early
probability that the formal and regulated concentration of their resources is impending, with such
careful safeguards as must necessarily be placed
around the process of subscription to the new
Regional banks' reserves and to the opening of their
business.
Mr. Reynolds, President of the association,
touched pointedly on this impending change in the
banking system in his opening address. That address has been described in some despatches as an
attack on the Federal Reserve Act. The description is scarcely fair. Mr. Reynolds frankly criticized certain features of the law which were the
focus of legitimate dispute during the process of
enactment. Every one knows that the measure
is not perfect, and that certain defects may hereafter have to be either modified or removed. But
Mr. Reynolds with equal frankness stated that
"the benefits of the operations of the new system
will become apparent with the lapse of time." That
it "was not enacted to meet impending emergency,"
and that, therefore, "too much must not immediately be expected," since "the change will be
gradual and should be regarded as an evolution in
the banking business "—these are wise words of
warning to those who expect an instant and total
change in the situation as the result of the new
system's introduction. Mr. Reynolds also pointed
out, what is a matter of much importance in our
present difficulties, that a great deficiency in our
existing banking system has been its "inability to
establish or maintain a foreign exchange market."
The new system, he believes, "opens the way
to supply this long-felt want; adding that, "while
"
a single central institution could more easily control
the exportation of gold by the operation of such a
market, yet by proper action the Federal Reserve
Board may so co-ordinate the business of the twelve
Reserve banks as to produce the desired result."
All this is fair, frank, and wise. Mr. Reynolds
called attention, however, to one gravely serious
defect in the law which may call for immediate
consideration. He thus described it:
"It has been popularly,supposed that with the
opening of the Federal Reserve Banks, Government
funds would be deposited in those banks, and the
independent treasury system and its consequent expense, both to the Government and the business of
the country, would be a thing of the past.
"A careful reading of the law, however, discloses the fact that its authors had no such intention, and that if Government funds are deposited
in these banks, or if they are appointed fiscal agents
for the Government, it will be at the discretion of
the Secretary of the Treasury alone, and that the

bill does not provide for the abolition of the present
system.
"It is a just criticism of the measure to say that
it does not take the Government out of the banking
business, and that it confers upon one of our government officials an extraordinary power and discretion, unwarranted by the spirit of our institutions and repugnant to republican principles.
"There is no reason why the funds of the Government, taken from the people by taxation, should
be handled in other than a business method."
Mr. Carter Glass, perhaps the most active among
the legislative authors of the bill, speaking to the
convention, frankly admitted the force of Mr. Reynolds' argument. He agreed "that some secretary might do wrong," and he "believed the reserve law should have provided that the Regional
banks carry the deposits and act as fiscal agents of
the Government." Mr. Hamlin, governor of the
Federal Reserve Board, confined his comments on
that matter to saying that the lending power of
Regional banks "may be greatly increased by the
deposit of public moneys which the Secretary of
the Treasury is authorized to place with the Reserve banks." But this statement merely emphasizes what is perhaps the greatest weakness of the.
existing provision. He is authorized, but not rzquired ; in other words, he still retains the longcontinued discretion as to placing public deposits
where he will with individual banks. What the
effect of this dispensing power of the Secretary of
the Treasury has been in recent years is known
to every one. It has served at times a useful purpose—which, however, can hereafter quite as well
be served through the holding of these funds by the
Regional banks. On the other hand, we have not
at times been spared such assertion of autocratic
dispensing power on the Treasury's part as was
certainly calculated to instill in many thoughtful
minds uneasiness as to the lodging of such authority in the hands of any individual. We hardly need
to particularize, but the inference is clear that this
power was dangerous, even before the strong
grounds for making deposit of such funds with the
Regional banks entirely mandatory had superseded
other considerations.
Mr. Hamlin's conclusion regarding the present
general situation deserves notice. That "our present difficulties do not appear to arise from scarcity
"
of actual money ; that "the real difficulty would
seem to be one of credit," in which "mutual trust
and confidence have been disturbed," is a fair diagnosis of the situation. Adding that "Ordinarily
such a situation would quickly adjust itself," the
Governor of the Federal Reserve Board supplements that statement with the warning that "we
should see to it that the remedies proposed are
not worse than the disease itself." To avert such
a result as that (of which there has in the last two
months been far more danger than most people
unagiite) will largely be the duty of a properly administered system of Regional banks under the
supervision of the Central board.

BANKERS' CONVENTION.
BANKING AND THE LARGER CITIZENSHIP.
An address under the caption of this title was
read before this year's Bankers Convention. It
was written by President E. K. Graham, of the
University of North Carolina. It is well worth a
careful reading for its suggestiveness and wholesome inspiration. It applies, in fact, to a much
larger field than its title indicates. It really concerns "Business" rather than "Banking," "and
the Larger Citizenship." This does not diminish
its value, but it gives occasion to apply its theme a
little more particularly, and to point out some of
the more definite and immediate relations in which
banks and bankers stand to the community.
These need not be novel or unusual to be worthy
of note. On the contrary, the fact that they are
in large degree universal and involved in the very
nature of public banking only makes their enumeration more important.
Civil society is everywhere facing new conditions; not merely those created by the war, but
those arising in the world of to-day, the world of
thought as well as the world of economics and of
government. Banks are in a position of special
responsibility in view of these changes; not that
the main functions of the banks are to change,
though important modifications and developments
are in progress; but because bankers are looked up
to as leaders in the business world. As a class, they
of
are worthy . the confidence placed in them. Individual dishonesty or malfeasance has not sufficed
to disturb this confidence. Their position is well
established. The way is open for them to exercise
most efficient leaderships to-day. It cannot fail,
therefore, to be worth while to call attention to the
path that lies open to them because of the nature
of their business and the functions which are specifically theirs.
To understand these functions as they pertain
to the life of the people, we must look away from
the great metropolitan banks. They are the ones
upon which attention centers ordinarily when banks
and banking are discussed; it is the bank in the
smaller town, the country bank, that must be looked
at when we would understand the real situation,
and apprehend the functions of the bank and the
position of the banker in the community.
One has only to take his stand at the counter
of the country bank and observe the business of the
day to discover these. Here is a merchant who
wants a note discounted; here a new business man
who would open an account; here a farmer who has
awakened to the need of some modern machine
or improved stock; here a bright young man, per• haps fresh from one of our many agricultural colleges, who wants to buy some land; here a citizen
who would build a new house, or another to inquire about securities; here a teacher who wishes
to invest her savings; and so on in endless variety.
At once it appears that the bank is there to give
sense of stability to the community. It is a kind
a

of providence, to meet immediate need for money,
but also to counsel, to instruct, to understand, to
co-operate in all helpful ways with all comers. As
so received and dealt with, they go away with a
new confidence and a new sense that, in a measure, the community is backing them up.
Here is not only help for the individual as a member of the community, but also there is the beginning of a community interest, the preparation.for
a community self-consciousness that prepares the
way for that community action of which President Graham makes so much in his paper. The
banker who may think that he has neither the
knowledge nor the time to take leadership in that
larger movement, finds that here, in the conduct of
his business, he is making valuable contribution to
it.
That he is a chief agent in promoting thrift is
obvious. All who do business with the bank know
that its officers watch carefully the individual life
of their customers. They are in constant conference about them with their neighbors, and that not
at all for gossip, but to be able to determine a basis
for credit, and with the mutual interest of promoting their prosperity.
It is not so obvious, but in this the bank is
strengthening the character of the individual citizen. It is not only holding the individual to a sense
of his personal responsibility for his public conduct and his business methods, but also for his
private habits; and, indeed, his inmost character,
for all this goes to make up his standing, not only
with the bank, but also in the community. Few
people associate the bank with the church, except
that the banker is expected to make generous contributions for its support; but here is a direction
in which the support of the bank, though little
recognized, is constant and most effective, in that
for which the church stands.
Equally true is it that the bank in the exercise
of its functions is developing the sense of property
in its obligations to society. The banker is guided
in the loans he makes, not only as the late Mr. J.
P. Morgan said, by the character of the borrower,
but perhaps even more by the use for which he
wants the money. If it is for investment or expenditure, which will be obviously of benefit to the
community, or if the borrower is known as a largeminded, public-spirited citizen having the respect of
all, that may be the determining fact. At once
the bank becomes known as promoting the investment, or appreciating, and therefore as to a certain extent, partaking of the character of the customer in the one case, and in the other promoting
the best interest of the community. In doing this
by the use of accumulated money, it is a perpetual
vindication of capital and an illustration of its constant service.
In the same direction it is always possible for
the bank to open for the community ways to larger
and broader interests. The banker is more closely
in touch with the outside world than most of his

BANKERS' CONVENTION.

fellow business men. He is compelled to be largely
informed, and ought to be especially intelligent.
Because of his position, also, he is apt to be the
first one approached by those who have plans of introducing new forms of business, or new industries, or of improvement of any existing conditions. Upon him more than upon any other citizen it depends whether or not the community is to
gain new enterprises, or to secure better conditions.
Should he be small-minded, self-centered, even in
his bank, or unintelligent, he may be, as unfortunately some rich men are, a serious hindrance to
the best interests of the community, so that his funeral, when it comes, is a widely felt relief, or, on
the other hand, he may be the very best citizen.
As such it is easy to see that his position is one
that any large-minded man may well covet.
All this leads us to emphasize the fundamental
fact, which unfortunately is sometimes denied, and
often overlooked—namely, that the public banker
is the administrator of a public trust. His charter,
if it does not distinctly state this, always implies it,
and the State, both by its legislation and its oversight, affirms it. The money brought to the bank
by depositors is not placed there for the banker's
private use, or for the shareholder's profit, though
incidentally both, within certain legally prescribed
limits, may occur. It is held primarily for use of
the depositor so far as he may from time to time
need it, and beyond that for loaning to other depositors having need for it. For this accommodation the borrower pays interest. That interest con-

stitutes the sum out of which the expenses of the
bank are, in part, paid, from which a protective
surplus is accumulated, and a certain amount is
contributed, in addition to what the bank may earn
by some other incidental forms of service, to the
profits to be paid to the stockholders. The strict
bank of deposit does not, as a rule, pay interest to
depositors on open account. They find their compensation in the convenience and security of the
account, and the basis of credit for such loans as
they may need.
If this strictly fiduciary relation is recognized
by the directors and officers of a bank, it will govern the relations of the public to the bank, and
will secure for them a personal treatment which
will keep the way open for constant and helpful
service.
In its larger aspect the bank holds a peculiarly
intimate position of trust, having in its care the
money of the individuals who separately make up
the public, and who having no organic financial
relation with the public, are provided for in that
relation by the State through the officers of the
bank. •
Bankers, of course, know this, but unfortunately
the public, perhaps because ,of traditions coming
from early days, or of unhappy individual experience, do not know it. It is unfortunate for all
concerned where this ignorance exists. Happily
the Bankers Convention in the breadth and intelligence of its discussions is doing much to remove
it.

INDEX TO ADVERTISEMENTS
PAGE.

Chicago,

72
FIRST NATIONAL BANK
NEW YORK STATE NATIONAL BANK 57

BANK OF MONTREAL
BECKER (A. G.) & Co
BOND & GOODWIN
COMPTON (Wm. R.) Co
CONTINENTAL & COMMERCIAL
NATIONAL BANK
CONTINENTAL & COM MER C I AL
TRUST & SAVINGS BANK
CORN EXCHANGE NATIONAL BANK

Atlanta, Ga.
ATLANTA NATIONAL BANK
FOURTH NATIONAL BANK

24
24

Atlantic City, N. J.
ATLANTIC SAFE DEPOSIT & TRUST
COMPANY
49

Baltimore, Md.
CONTINENTAL TRUST CO.. . ...
.
FIDELITY TRUST CO
FIRST NATIONAL BANK
GARRETT (ROBERT) & SONS
LEACH (A. B.) & CO
IDDENDORF, WILLIAMS & CO., INC
N ATIONAL LNI0N BANK OF MD...
SAFE DEPOSIT & TRUST CO

19
20
21
22
21
3
21

Bayonne, N. J.
MECHANICS TRUST CO

Hartford, Conn.
58

HARTFORD NATIONAL BANK

54
52
34

ROYAL BANK OF CANADA

Hong Kong, China.

SHANGHAI
HONG
KONG
&
66
BANKING CORPORATION.

Inside Back Cover.
CUTTER, MAY & CO
29
FORT DEARBORN NATIONAL BANK. 39
HATHAWAY, SMITH, FOLDS & Co
11
HIBERNIAN BANKING ASSN
38
MBRIE (WM. MORRIS) & CO
6
LEACH (A. B.) & Co
8
LYBRAND,
ROSS
BROS.
MONTGOMERY
45
READ (WM. A.) & CO
1
RUSSELL, BREWSTER & CO
35
STAATS (WM. R.) CO
29
STATE BANK OF CHICAGO
39
STONE & WEBSTER.
71

Berlin, Germany.
67

FIRST NATIONAL BANK
FIRST TRUST & SAVINGS CO

67
74

Columbia, S. C.

72
72

PALMETTO'NATIONAL BANK

—0

Dallas, Texas.
CITY NATIONAL BANK

Birmingham, Ala.
BIRMINGHAM TRUST & SAVINGS CO 24
24
FIRST NATIONAL BANK

Denver, Col.

Boston, Mass.
BOND & GOODWIN
BOSTON SAFE DEPOSIT & TRUST CO
FEDERAL TRUST CO
HATHAWAY, SMITH, FOLDS & 0
HAYDEN, STONE & CO
INTERNATIONAL 1.RUST CO
LEACH (A. B.) & Co
MERRILL, OLDHAM & CO
NATIONAL SHAW MUT BANK
NATIONAL UNION BANK
NEW ENGLAND TRUST CO
READ (Wm. A.) & Co
STONE & WEBSTER

52
53
52
11
51
54
8
54
50
52
73

BOETTCHER,'PORTER & CO
FIRST NATIONAL BANK
INTERNATIONAL TRUST CO

31
30.
31

Des Moines, Ia.
DES MOINES NATIONAL BANK

37
37
35

1
71

Edinburgh, Scotland.
ROYAL BANK OF SCOTLAND

Brooklyn, N. Y.
BROOKLYN TRUST CO
FRANKLIN TRUST CO
NASSAU NATIONAL BANK
PEOPLES TRUST CO

17
13
17
17

Jacksonville, Fla.
HEARD NATION k L BANK

Jersey City, N. J.
FIRST NATIONAL BANK

1(1

Kansas City, Mo.
COMMERCE TRUST CO

London, England. •
ANGLO-SOUTH AMERICAN BANK. . 69
.
BANCO ALEMAN TRANSATLANTICO
67
BANK OF BRITISH NORTH AMERICA. 60
BANK OF MONTREAL.
58
BANK OF NEW SOUTH WALES. . . 65
.
CANADIAN BANK OF COMMERCE. . .
59
CAPITAL & COUNTIES BANK. LTD
65
CHARTERED
OF
BANK
INDIA,
AUSTRALIA & CHINA
69
DEUTSCHE BANK.
67
DOMINION BANK
62
FARMERS' LOAN & TRUST CO
74
LEACH (A. B.) & Co
8
LONDON CITY •& MIDLAND BANK,
LIMITED
68
LYBRAND,
BROS.
ROSS
&
MONTGOMERY
MORGAN, GRENFELL & CO.

1
READ (WM. A.) & Co
61
ROYAL BANK OF CANADA
66
ROYAL BANK OF SCOTLAND
SPEYER BROTHERS.
180
STANDARD BANK OF S. AFRICA, LTD. 68
UNION OF LONDON &• SMITH'S
BANK, LTD
70
UNION BANK OF CANADA
63
YOKOHAMA SPECIE BANK. LTD. . 67
.
Los Angeles, Cal.

Elizabeth, N. J.
NATIONAL STATE BANK
UNION COUNTY TRUST CO.

Houston, Texas.
26
FIRST NATIONAL BANK
LUMBERMAN'S NATIONAL BANK... 26

Outside Back Cover.
37

Detroit, Mich.
DIME SAVINGS BANK.
PEOPLE'S STATE BANK
UNION TRUST CO

Havana, Cuba.

Cleveland, Ohio.

BANCO ALEMAN RANSATLANTICO.
DEUTSCHE BANK
FARMERS' LOAN & TRUST CO

PAGE.

Albany, N. Y.

48
48

CITIZENS' NATIONAL BANK
FIRST NATIONAL BANK
STAATS (WM. R.) Co

29
28
29

Fort Worth, Texas.
LEACH (A. B.) & CO
THIRD NATIONAL BANK

Louisville, Ky.

FORT WORTH NATIONAL BANK.. . .
26

Buffalo, N. Y.

FIDELITY & COLUMBIA TRUST CO.. 22

8
57

Lynn, Mass.

Glasgow, Scotland.
ROYAL BANK OF SCOTLAND

Camden, N. J.
CAMDEN SAFE DEPOSIT & TRUST. 47
.

Chattanooga, Tenn.
HAMILTON NATIONAL BANK

Grand Rapids, Mich.
HOWE, SNOW, CORRIGAN & BERTLES 36
KELSEY, BREWER & CO
36
MICHIGAN TRUST CO
36
OLD NATIONAL BANK
36

SECURITY TRUST COMPANY.

Mexico City, Mexico.
BANK OF MONTREAL
58
CANADIAN BANK OF COMMERCE... .59

Milwaukee,
FIRST NATIONAL BANK

Wis.

INDEX TO ADVERTISEMENTS—Continued

PAGE.

Minneapolis, Minn.
BOND & GOODWIN
FIRST NATIONAL BANK
MINNEAPOLIS TRUST CO
Mobile, Ala.
PEOPLE'S BANK

52
31
31

Montreal, Canada.

BANK OF BRITISH NORTH AMERICA. 60
58
BANK OF MONTREAL
63
BRONVNE (W. GRAHAM) & CO
62
MERCHANTS BANK OF CANADA
64
MOLSONS BANK (THE).
61
ROYAL BANK OF CANADA

Morristown, N. J.
MORRISTOWN TRUST CO

Nashville, Tenn.

Norfolk, Va.

FOURTH & FIRST NATIONAL BANK. 25

Newark, N. J.
ESSEX CO. NATIONAL BANK
FIDELITY TRUST CO.
UNION NATIONAL BANK

48
178
48

New Orleans, La.

WHITNEY-CENTRAL NAT. BANK.... 27
&
TRUST
WHITNEY-CENTRAL
27
SAVINGS BANK
New York City.

ANGLO-SOUTH AMERICAN BANK... 69
BANK OF BRITISH NORTH AMERICA 60
13
BANK OF MANHATTAN CO
58
BANK OF MONTREAL
5
BANKERS TRUST CO
52
BOND & GOODNVIN
17
BROOKLYN TRUST CO
59
CANADIAN BANK OF COMMERCE
INDIA,
OF
BANK
CHARTERED
69
AUSTRALIA & CHINA.
1
NATIONAL BANK
CHASE
15
CFIATHAM-PHENIX NATL. BANK
17
CHELSEA EXCHANGE BANK
7
CHEMICAL NATIONAL BANK
16
NATIONAL BANK
COAL & IRON
11
COLUMBIA TRUST CO
34
R.) CO
COMPTON (WM.
179
CORN EXCHANGE BANK
74
FARMERS' LOAN & TRUST CO
13
TRUST CO
FIDELITY
13
FRANKLIN TRUST CO
11
SMITH, FOLDS & CO
HATHAWAY,
51
HAYDEN, STONE & CO
HONG KONG & SHANGHAI BANK66
ING CORPORATION.
15
HUDSON TRUST CO
6
MORRIS) & CO
IMBRIE (WM.
8
LEACH (A. B.) & CO
15
BANK
LINCOLN NATIONAL
14
LINCOLN TRUST CO
BROS. &
LYBRAND, ROSS
45
MONTGOMERY
70
MAITLAND, COPPELL & CO
16
MARKET & FULTON NAT. BANK
62
MERCHANTS' BANK OF CANADA
MIDDENDORF,.WILLIAMS & CO., INC .21
MORGAN (J. P.) & Co
Outside Back Cover

PAGE.
12
MUTUAL ALLIANCE TRUST CO
15
MUTUAL BANK
12
MULLER, SCHALL & CO
16
NEW NETHERLAND BANK
14
NEW YORK COUNTY NAT. BANK
NEW YORK LIFE INS. & TRUST CO
9
NEW YORK TRUST CO
1
READ (Wm. A.) & Co
61
ROYAL BANK OF CANADA
35
RUSSELL, BREWSTER & CO
10
SEABOARD NATIONAL BANK
46
SMITH (EnwAan B.) & CO
180
SPEYER & CO.
RD
STANDA. BANK S. AFRICA, LTD 68
71
STONE & WEBSTER
UNION EXCHANGE NATIONAL BANK 64
UNITED STATES MTGE. & TRUST Co 18
12
UNITED STATES TRUST CO
67
YOKOHAMA SPECIE BANK, LTD

THE CITIZEN'S BANK
NATIONAL BANK OF COMMERCE
NORFOLK NATIONAL BANK

Omaha, Neb.
OMAHA NATIONAL BANK

23
23
23

Paris, France.

FARMERS' LOAN & TRUST CO
MORGAN, HARJES & CO.
Outside Back

Providence, R. I.
INDUSTRIAL TRUST CO
MERCHANTS' NATIONAL BANK
MILLER (ALBERT P., JR.)
RHODE ISLAND HOSPITAL TR. CO

55
55
55
55

Richmond, Va.
WILLIAMS (JOHN L.) & SONS.... 18
St. Louis, MO.
34
COMPTON (WILLIAM R.) CO
11
HATHAWAY, SMITH, FOLDS & CO
MECHANICS-AMERICAN NAT. BANK 33
MISSISSIPPI VALLEY TRUST CO
Inside Front Cover.

NATIONAL BANK OF COMMERCE

BANK OF BRITISH NORTH AMERICA 60
52
BOND & GOODWIN
59
CANADIAN BANK OF COMMERCE
BROS. &
LYBRAND. ROSS
45
MONTGOMERY
99
STAATS (WM. R.) Co

Cover.

Seattle, Wash.
CANADIAN BANK OF COMMERCE... 59
BROS. &
LYBRAND, ROSS
45
MONTGOMERY

29
J.

FIRST NATIONAL BANK
PATERSON NATIONAL BANK
SECOND NATIONAL BANK
Philadelphia,

Pasadena, Cal.

STAATS, (WM. IL) Co
Paterson, N.

Plainfield, N. J.
PLAINFIELD TRUST CO

San Francisco, Cal.

Ottawa, Ont.

BANK OF OTTAWA

PAGE.
22
4

PEOPLE'S NATIONAL BANK
L MON TRUST CO

49
49
49

Spokane, Wash.
BANK OF MONTREAL

Springfield, Mass.
SPRINGFIELD NATIONAL BANK

Pa.

46
BODINE, SONS & CO
CORN EXCHANGE NATIONAL BANK 45
DREXEL & CO. Outside Back Cover.
44
FIRST NATIONAL BANK
FOURTH STREET NATIONAL BANK 41
179
FRANKLIN NATIONAL BANK
179
GIRARD NATIONAL BANK
GIRARD TRUST CO. Inside Front Cover.
11
HATHAWAY, SMITH, FOLDS & CO
8
LEACH (A. B.) & Co
BROS. &
LYBRAND, ROSS
45
MONTGOMERY
MARKET STREET NATIONAL BANK.. 44
FOR
CO.
PENNSYLVANIA
42
INSURANCES ON LIVES
43
PHILADELPHIA NATIONAL BANK
PHILADELPHIA TRUST, SAFE
49
DEPOSIT & INSURANCE CO.
1
(WM. A.) & Co
READ
40
REAL ESTATE TRUST CO
46
SMITH (EDWARD B.) & CO
44
THIRD NATIONAL BANK
45
UNION NATIONAL BANK
Pittsburgh, Pa.
HATHAWAY, SMITH, FOLDS & CO.. 11
BROS. &
L YB RAND, ROSS
45
MONTGOMERY

Sydney, N. S. W.
BANK OF NENV SOUTH WALES..... 65
Toronto, Canada.
BANK OF TORONTO
CANADIAN BANK OF COMIIERCE
DOMINION BANK.
Trenton, N.

64
50
62

TRENTON BANKING CO

Utica, N. Y.

CITIZENS TRUST COMPANY

Washington, D. C.
COMMERCIAL NATIONAL BANK.... 19
18
PLANT (A. G.) & Co
19
RIGGS NATIONAL BANK
Winnipeg, Canada.
UNION BANK OF CANADA

Worcester, Mass.

MERCHANTS' NATIONAL BANK

511

Yokohama, Japan.
YOKOHAMA SPECIE BANK, LTD..•. 67

BANKING SECTION
AMERICAN BANKERS' ASSOCIATION
40th Annual Convention, Held at Richmond, Va., Oct. 14 and 15 1914

INDEX TO CONVENTION PROCEEDINGS
The Genesis of the Federal Reserve Law,Carter Glass Page 81
Preparing Federal Reserve Banks, C. S. Hamlin - Page 87
The Will of the People, Martin W. Littleton - - Page 88
The Case of the Lost Million, James M. Beck - - Page 95
Banking and Larger Citizenship, Edward K.Graham Page 103
Problems in Road Improvement, Logan Waller Page Page 105
Soil Fertility—Greatest Necessity, C. G. Hopkins - Page 107
Page III
Educating the Producer, J. D. Eggleston
Page 117
Annual Report of Secretary
Page 120
Report of Treasurer
Page 120
Report of General Counsel

Report of Committee on Federal Legislation
Report of Law Committee
Report of Protective Committee
Report of Committee on Constitution
Committee on Fidelity Bonds and Insurance
Report of Library and Reference Department
Detailed Report of Proceedings
Address of Welcome
. President Reynold's Address Report of Agricultural Commission
Status of Automobile Industry

Page 125
Page 126
Page 123
Page 134
Page 127
Page 122
Page 130
Page 130
Page 131
Page 124
Page 138

The Genesis of the Federal Reserve Law.
By CONGRESSMAN CARTER GLASS, Chairman of the Banking and Currency Committee of the House of Representatives.
I am not quite sure that I would not have paid the
American Bankers Association a greater compliment, or
if I would not have rendered them a greater service, by
declining rather than by accepting the invitation to appear here this afternoon to address you upon the subject
of the Federal Reserve Act. It is no credit to a public
speaker, and less of a compliment to his audience, for
him to come upon a serious and important occasion without due and careful preparation. But, gentlemen, the
fact is that for the past ten months I have been exercising my wits in the direction of keeping things done to
such an extent, keeping things from being done, that I
am rather rusty and confused as to what already has
been accomplished. And it is scarcely necessary that I
should say to you, who are familiar with legislative
processes, that at times it is of vastly more importance
to keep things from being done than it is to do things.
Then, again, I am somewhat embarrassed at the idea
of coming as a layman in the presence of experts to expound to the banking fraternity the various provisions
of an act that relates almost exclusively to their line of
business. And I scarcely think I shall venture in any
great detail upon that task this afternoon.
It has occurred to me that I might occupy the time
assigned to me with a more or less interesting discussion
of the side lights upon the Federal Reserve Act, in a
narrative way; and what I shall say will be more or less
a repetition of what I have already pretty generally said
throughout the country, and I am afraid will not be
very enlightening to a large part of this audience.
You will very readily understand that, for the last
fifty years, _since the enactment of the National Bank
Act, you have been compelled to conduct the banking
business of this country in a straitjacket. There has
been no elasticity, there has been little scope for initia-

tive; in short, we have had in this country a banking
system that by the best bankers has been pronounced
barbarous in its operation. It has made us for years the
scoff of European critics, both the practical banker and
the text-book writer, because of its Inefficiency; and I
have so frequently said, and here I repeat this afternoon,
that the progress and prosperity of the American people, and the achievements of the American banker, have
been made in spite of our banking system rather than because of it.
There have been many efforts at modification, and
amendments and reformation, all of which until recently
have failed. As pointed out by Governor Hamlin, we had
the effort made at Indianapolis eighteen years ago by
the Indianapolis Montetary Commission, which drafted a
bill which was introduced in the House of Representatives, and found its inevitable place in the archives of
the Banking and Currency Committee -room. Then we
had the Walker bill, introduced by a distinguished chairman of the Banking and Currency Committee from Massachusetts; then we had the Fowler bill for asset currency, and upon that some degree of progress; but the
action of Congress was interrupted by the introduction
of what is known as the Vreeland and Aldrich bill, or
rather the introduction of the Vreeland bill and the
Aldrich bill; the one denounced by Senator Aldrich as
utterly useless and the other denounced by Congressman
Vreeland as altogether vicious, were united into the Vreeland-Aldrich bill, which was pronounced by observant
members of Congress, who claimed to have some knowledge of the subject, as totally inefficient as it was in its
original form. It was foreseen that with its tax of 10
per cent. upon the issues under it no bank on earth, that
was not already prepared to fly the signal of distress at
the masthead, could ever avail of its provisions. But

BANKERS' CONVENTION.

when the Vreeland-Aldrich bill was passed one good thing
was done in connection with that legislation: the Congress appointed a Monetary Commission of distinguished
gentlemen, and this Commission went abroad, and went
throughout this country, taking testimony, and at a cost
of nearly two hundred thousand dollars—approximately,
I think $196,000—assembled one of the greatest libraries
upon finance that was ever assembled on the face of the
earth. And I don't know who else had access to it in
the preparation of the Federal Reserve Act; I simply
know that I did not.
Then came a more vehement agitation for currency legislation, and to some of us the idea occurred that if the
great Clearing House organizations of the large money •
centers, and, indeed, of all communities of the country,
managed to rescue the country from the throes of panic,
why might not institutions of a kindred nature, given
clearing functions, together with larger banking functions, prevent panics coming at all? And upon that idea •
the present Banking and Currency Committee of the House
of Representatives set to work, and without going into
great detail, the Federal Reserve Act now upon the statute books is the result of that effort. We found, upon
investigation, that there were two fundamental defects in
the existing banking and currency system. One was the
inelasticity of the curiency, with which all bankers are
familiar, and that there was the vexatious nature of our
National Reserve system; and we conceived the notion
that if we could devise a system that would correct those
two serious and fundamental errors of the old system
that we would go a far way toward a solution of the
problem, and this, we think and confidently hope, the new
Federal Reserve Act will accomplish. Under the old system the currency was absolutely rigid and inelastic. We
had gone for years on the presumption, the currency
being based upon the Nation's indebtedness, that we
never needed any more currency than could be measured
by the national indebtedness, and, on the other hand,
that we never needed any less; when, as a matter of
fact, we frequently needed more, and perhaps just as
often needed less. Yet it was rigid, practically measured
by the aggregate of the 2 per cent. United States bonded
indebtedness. In other words, I can best illustrate it
by saying, take any given community—Richmond, Virginia, for example—and if the aggregate capital of the
national banks of this community, under the old system, was thirty million dollars, that measured completely
—completely indeed—the ability of the national banks of
the city of Richmond to respond to the commercial and
industrial needs of the community, albeit that might be
twenty times thirty million dollars. That being true,
whenever stress and urgent need came upon the country
there could be no response to the commercial needs of
any active business community. That being true, instead
of pursuing business prosperity, times came when business prosperity actually caused wreck and ruin throughout the Republic. When the country banks, responsive
to the local demands, would begin drawing out their reserve funds with the reserve and central city banks, and
those banks, in turn to respond, compelled to call in their
loans when rates of interest were mounted higher and
higher and pretty soon we would find ourselves in a
financial cataclysm, banks closed down, business and industry paralyzed and want and misery and deprivation
spread broadcast throughout the land.
Then, again, and now we have undertaken, gentlemen,
to correct that inelasticity, to give you a currency not
based upon the nation's indebtedness, but a sane, sensible, scientific currency based upon the commercial and
Industrial requirements of the country, responsive automatically to those requirements, issuing forth when business is active and being withdrawn when• business is
slack. Based upon the short-time plighted faith and ability of American merchants and manufacturers and business men to respond to their individual and corporate

obligations. And there is nothing more secure on earth,
not even your Government bond, than that sort of security.
Then you had a fictitious reserve system. I like to
talk to people who do not understand these things, because then I will Ise telling them sometiling they don't
know. Presumptively, we had a reserve of 15 per cent.
for the country banks and 25 per cent. for reserve in
central reserve city banks, but in reality they did not
have any such reserve, because the law permitted the
country banker to deposit a greater part of his reserve
with the reserve city bank, and in turn permitted the reserve city banker to pyramid the reserve further by deposit in the central reserve city bank. Nevertheless, that
system resulted ill withdrawing the reserve funds from
all the country and centralizing them in the great money
centers of the country; put there upon a nominal rate of
interest to be used by the banks in a great money center,
and those banks, in order to recompense themselves,
used those reserves in the maelstrom of Wall Street speculation rather than to promote the general business interests and prosperity of the country. I am not saying this
in a critical sense; I am stating it as a matter of fact.
So that in the great banks of New York City alone last
March there were deposited $893,000,000 of the reserves
of banks outside of that great money center, whereas
New York was loaning the banks of the country only
$187,000,000 on that date. There is an impression abroad
that the balance of the country is dependent upon New
York, but the fact that I have cited shows that New
York is dependent upon the balance of this country.
It was that system, the concentration of the reserves
of the country almost at a single center, to be used in
speculative enterprises in the slack season, and unresponsive to demand at an urgent time, that created almost
every panic that we have ever had in this country, and
which we sought to protect.
Well, we think we have devised a system in this Federal Reserve Act whereby over a period of years, without
any shock to normal business or banking operations
would draw in these reserve funds from the great money
centers and gradually impound them in those sections of
bethe country where they originated and where they
to the
long, and where they may at all times respond
the
business necessities and industrial requirements of
various "sections of this country. I say we have spread
the operation over a period of three years in order that
there may be no disturbance to the normal business of
the country.
Now, then, we have taken this through a system of
regional reserve banks, twelve of which are in process
of organization under the statute. The banks, as you
know, are to be presided over by a Board of nine directors, three of them selected especially to represent the
banking interests, three of them selected to represent the
varied business interests of the community, and three
appointed by the Federal Reserve Board at Washington
to represent the people of the United States.
These banks are to be owned and operated by the member banks of the United States, the National Banks being
required to subscribe a certain percentage of their capital and surplus to the capital stock of the regional reserve banks, and State Banks and Trust Companies becoming members are permitted to subscribe the same
amount to the capital stock.
The capital stock of the Regional Reserve Bank is to
l'ear 6 per cent., is to receive n 6 per cent. dividend from
the earnings of the bank. All earnings in excess of that
shall first be applied to afford a surplus fund in order to
strengthen the regional reserve banks, and when these
6 per cent. cumulative dividends, free of all taxation—
national, State or municipal—shall have been paid and
the surplus fund accumulated, all earnings in excess shall
go to the Government of the United States.
Then we provide a Federal Reserve Board to super-

BANKING SECTION.
vise the entire Federal Reserve system, composed of
seven members, two of them, to wit, the Secretary of the
Treasury and the Comptroller of the Currency, ex-officio
members, and five to be appointed by the President of
the United States for a term of ten years.
upon
The Regional Reserve Bank, you will observe .
reading the law, has confided to it all of the strict banking functions. The Federal Reserve Board has confided
to it complete power of examination and supervision, and
only upon the rarest occasions, and that under severe restrictions, the single banking function. So that the Federal Reserve Board under this sytem does not interfere
In the slightest degree with that spirit of independent
banking which has grown up in this country. It does not
interfere with the strict banking operation of the individual bank at all. It just has broad powers of examination and supervision; it is strictly an altruistic commission for the benefit of the banks and of all the people
of this country.
As I have indicated, and as you know, State banks may
become members and National banks must become members.
We have appointed a Federal Advisory Board, to be
selected by the Regional Reserve Banks themselves, with
authority to meet in Washington and to advise with the
Federal Reserve Board upon all matters considered by
that Board. We have invested these Federal Reserve
Banks with an almost unlimited power of re-discount.
The individual bank, after discounting its commercial
paper, may, upon indorsing that paper, pass it up to the
Regional Reserve Bank and get its paper re-discounted at
the prevailing rate of rediscount initiated by the Regional
Reserve Bank, subject to the approval of the Federal
Reserve Board. You will note that the individual bank
has an almost unrestricted opportunity, regardless of
its capital, to obtain these rediscounts. In other words,
a bank capitalized at $100,000 may be accommodated to
as great an extent as a bank capitalized at $500,000, or
$1,000,000, if it has this short-time commercial paper at
hand.
Then we give the Regional Reserve Bank a limited
open market operation. That power was somewhat analogous to the operation of the Bank of England in being
able to go out in the open market and loosen up money
conditions in order to enforce its rate of discount.
The act permits the Secretary of the Treasury to make
these Regional Reserve Banks the fiscal agents of the
United States Government and to deposit with them all
of the Government current revenues except the trust
funds.
We then provide for the refunding, over a period of
thirty years, of the Government two per cent. bonds into
Government three per cent. bonds without the circulating privilege, and we provide for the issuance
during
that period of three ber Cent. Government gold notes.
This is gradually to retire the bond secured currency and
put us upon a commercial basis currency.
We think we have greatly improved the bank examination system of the country. We have a provision
that gives National banks the right to loan a certain
percentage of their funds, particularly their time deposits, upon real estate, something that the National banks,
under the National Bank Act and the interpretations at
Washington, had never been able to do.
Finally in order to promote our foreign trade and dissipate the disadvantages under which America, for years
and years, has been operating, we have authorized banking institutions with as much as a million dollars capital
to establish branches in foreign countries.
If I may notice for a little while some of the objections
to this bill, and at the same time indicate how they were
met, I think this audience will have a better understanding of the Federal Reserve Act. In the first place, It was
objected by the banks that the regional reserve banks
should be exclusively in control of the banking com-

munity. It was argued that all the directors of the
regional reserve banks should be selected by the banks
themselves without restriction, the statement being that
the regional reserve banks were owned by the member
stockholding banks and that therefore only the banks
should select the directors and look to the operation of
the regional reserve bank.
It was pointed out in response to that that this was
a great national system proposed to be established, not
alone for the advantage of the banks but equally for the
advantage of business and for all the people of the
United States. It was pointed out further that the
United States would perhaps be the largest individual
depositor in the regional reserve bank. Indeed, when
this argument had to be met, the draft of the bill required that these banks be made the fiscal agents of the
Government and required that the Government's current
revenues should be deposited with those banks. Therefore, it was contended that the people of the United
States, through their Government, being the largest depositors with the regional reserve bank, should be represented upon the Board of Directors by the appointment
of three Class C directors, and it was so held by the Congress.
It was contended that the banks should select a certain
proportion of the Federal Reserve Board, and by many
it is so contended now. Gentlemen, that seemed a plausible and a fair proposition. The fact is that it fooled me
good for a while. I did not hesitate; gentlemen, I did
not hesitate from the beginning to the end of this chapter to stand for the banks when I thought the banks
ought to be stood for, any more than I hesitated to stand
for the American people when I thought they should be
stood for.
I thought the banks should have minority representation of their own selection upon the Federal Reserve
Board, and so contended, and when the President of the
United States said to -me that he did not approve the
proposition I did not sleep one wink that night, and next
morning, before leaving my room at the Raleigh Hotel,
I sat down, undeterred by tidal consequences, and wrote
a letter to the President saying to him that I thought
his decision was fundamentally wrong and politically inexpedient. I hope he has torn the letter up. Next day
there came to Washington a committee of great bankers—
George M. Reynolds of Chicago, John Perrine of the
Pacific Coast, my distinguished Hebrew friend Sol Wexler
from Louisiana, Festus Wade of St. Louis, and others—
to convince the President of the United States that he
was wrong and that the bankers were right in their contention. I headed the procession up to the White House.
Still undeterred by tidal consequences, rather proud of
my men, the first time I ever felt wealthy in my life—
I was with George Reynolds, who had boasted of being
one of the twelve men who controlled the credits of this
country—I led the procession to the White House.
The President gave us audience, cheerful and cordial.
I presented these gentlemen. The President knew my
views, so it was not necessary for me to state them, but
they presented their views with all the persuasiveness of
which they are capable—and you know what that
means.
Already convinced in my own judgment, I was delighted
at the tactful and logical way in which they
presented
the argument; but presently the President of the
United
States turned and said, "Gentlemen, I challenge
you to
point to one government board, in this or any
other civilized country, upon which private interests have
representation." There was just such an intense silence
in
the President's room as there is in this hall
right now.
Not one of those gentlemen answered, and I could
not
answer. I was converted. I am convinced that the
President was right.
On the floor of Congress this same contention
was
made, and I responded that it should be written
into the
law as well that railroad presidents and
general mana-

BANKERS' CONVENTION.

gers of railroads of this country should have representation upon the Interstate Commerce Commission, which
is to regulate and manage them, as to say that the bankers as such should select representation upon a Government board which is to regulate and manage them. Ah,
but the response was, "Do you contend that the Interstate Commerce Commission has the same power over the
railroads that the Federal Reserve Board has over the
banks?" "Yes, infinitely more power over the railroads
than the Federal Reserve Board has over the banks.
They make a rate upon petition; aye, they can initiate
rates for the railroads that bind them, however much
they may object."
"Ah, but," said one of the critics, "can they take the
property of one railroad and use it for another?" Yes,
and they do it every day of the week. They take the
rolling stock that one railroad has bought with the
money of its stockholders and apply it to the use of some
other railroad. They make a joint traffic rate that may
'not be •compensatory to my railroad, but nevertheless I
have to endure it. I took that Interstate Commerce Act
and gave a recital of the powers of the Interstate Commerce Commission, at which Congress itself, although it
'enacted the law, was amazed. They were incomparably
broader and more stringent over the railroads than the
powers of the Federal Reserve Board over the banks.
What are some of these powers of the Federal Reserve
Board? I say to you here—and I challenge you to interruption and contradiction—that there is scarcely one
power given by law to the Federal Reserve Board that
has not been exercised more or less by a single public
official of this Government for thirty years. What are
the powers of the board of specialists, say? One was the
power of the Board to suspend all reserve requirements
for a period of thirty days, and renew the suspension for
a period of fifteen days. You bankers know that that is
a power that has been possessed and exercised by the
Comptroller of the Currency under the National Bank
Act, for fifty years. There is not a banker in this audience who may not permit his reserve to go down tomorrow—I do not know that there is one who has
not done it—and the only power on earth that could make
him restore his reserve to the legal requirements is the
Comptroller of the Currency, and he can only do it upon
thirty days' notice. So that there were objections to a
power to be exercised by the Comptroller of the Currency
with six associates that had been exercised for fifty years
by the Comptroller of the Currency alone at his own
sweet will.
Then there was vehement objection to that part of the
perAct which authorizes the Federal Reserve Board to
one of the regional reserve banks to remit or compel
discount the discounted paper of another regional reserve
not
bank. They said that was confiscation. No, it was
confiscation. There was not an element of confiscation
about it. The Board was not permitted to require one
bank to take the property of another without compensation, not at all. It was authorized to compel one bank
to
with surplus funds and redundancy of funds to come
commerthe assistance of a bank without it, upon prime
normal
cial security and at a rate of interest above the
prevailing rate. That is not confiscation. But, gentlepossessed
men, it is analogous to a power that has been
for
and exercised by the Secretary of the Treasury
the National Bank Act The Secretary
fifty years under
Government
of the Treasury to-morrow can deplete every
depository in New York and transfer the funds to New
Orleans, or can take the Government funds out of the
national banks of New Orleans and deposit them with
or of Boston. It is
the national banks of San Francisco
tremendous power, a power that your President here
a
to republican institutions.
to-day said is repugnant
wonder that was not found out long ago.
I
and exercised by the Secretary
It has been possessed
Treasury alone for fifty years. Gentlemen, in 1907,
of the

when the Secretary of the Treasury, at his own discretion, took $43,000,000 that had been collected from the
American people by taxation and deposited it at Washington, and he took $43,000,000 of the people's money and
deposited it with the banks of New York to save the
situation there, you did not hear a chirp or a word about
"power repugnant to republican institutions." The Secretary of the Treasury did right then. But I agree with
the President of the American Bankers' Association that
some time we may have a Secretary of the Treasury who
would do wrong, and we ought to jealously guard the
functions of that great position and the liberties of the
American people. I wrote it into the bill, not that it
might be optional with the Secretary of the Treasury to
make these regional reserve banks, not that it might be
upon his discretion that the public funds might be deposited with those banks, but that he should make them
fiscal agents and that he should deposit the people's
money with them. I believe now it ought to be the law.
Then some other objections were offered. There was
objection to the note issue provided by this bill. One of
the distinguished members of the American Bankers'
Association, the greatest banker in the Western Hemisphere, said that it was fiat money, that this Federal Reserve note was fiat money. Gentlemen, there is not an
element of flatism in these notes, not a suggestion of it.
What is fiat money? Flat money is money that relies
corupon the government alone for its value. Is that a
rect definition of a Federal Reserve note under this act?
to
The gentleman who so characterized it cannot appeal
defia lexicographer in the civilized world to justify his
nition of these notes.
They have a gold reserve of 40 per cent, behind them
to begin with. In addition to that, they have a secondary
reserve of 100 per cent. short time commercial paper. In
addition to that, they are made a first and paramount
lien upon the assets of all the regional reserve banks,
including the double liability of the member banks. In
addition to that, they have the unqualified endorsement
of a nation of ninety-five million free American people.
Fiat? When that gentleman was denouncing these notes
as fiat, the greatest international banker in America, who
has since been made a member of the Federal Reserve
Board, was in Washington protesting to me that they had
too much security behind them. Mr. Warburg, then and
since, has insisted that the secondary commercial reserve
should be reduced to 66 2-3 per cent.
They said this system provided for amazing inflation.
Indeed, one critic in Chicago was proclaiming that the
Federal Reserve Act afforded a dangerous amount of in-'
flation on the very same calendar day that another distinguished banker before the Senate Committee was proclaiming that it provided an amazing amount of com
mercial contraction. It could not provide both at the
same time, gentlemen, and as a matter of fact it does
not provide either at any time. It provides for a reasonable amount of expansion, and the law would not be
worth the paper it was written upon if it did not provide that. That is what it was intended to provide, to be
responsive to the business activities of the country, to
the requirements of commerce and of industries, but no
inflation.
But, if you gentlemen will pardon me for frankness,
this criticism was leveled at the Federal Reserve Act, by
the gentleman who swallowed down without a grimace
the Aldrich bill, that provided for six billions of dollars
of expansion. This was demonstrated in a public address,
and yet you gentlemen gulped it down. Before the Banking and Currency Committee it was put into the Record
that when the American Bankers' Association unanimously endorsed the Aldrich bill, the paper upon which
it was printed had so recently come from the press that
it was not yet dry; and It was asserted that not 5 per
cent. of the delegates present had read the bill when
they endorsed it. And yet there was a bill that provided

BANKING SECTION.
that the notes of the Central banks should be used by
the individual banks as reserve, and Mr. Hurlburt, of
Chicago, demonstrated to a mathematical certainty that
it involved an inflation of six billions of dollars; and
yet gentlemen who were willing to endorse that sort of
a measure criticise us in Congress for this bill. We have
not undertaken in this law to do away with the sanctity
of the individual banker. We have made every safeguard
against inflation. A gold reserve of 40 per cent., a secondary reserve of 100 per cent., the serious and solemn
obligation of the individual banker to his stockholders in
discounting paper, the serious and solemn obligation of
the directors and managers of the regional reserve bank
in scrutinizing the discounted paper before it is rediscounted, and then in the last analysis the banking experience and observation and solemn duty of the Federal
Reserve Board to pass upon it in the third degree, are
the safeguards we have provided against inflation.
We have provided a 10 per cent, tax upon regional
.reserve banks that undertake to pay out the notes of any
other regional reserve banks.
Every device suggested ,to us by banker or layman,
that appealed to the judgment of Congress, is here embodied in this bill. The House was even criticised on the
Senate side, it being said that the bill provided inflation.
And pray, what did the Senate do to correct the inflation? They accentuated every possible danger. They
provided that Federal Reserve notes should be used as
reserve in the individual banks. It proposed a system of
domestic acceptances which Sir Edmund Walker testified before our Committee would wreck any country on
the civilized globe. It proposed that the denominations
of the notes should be as low as ones and twos. That
august, that grave and senior body, thus undertook to
guard against inflation.
Then we put a provision in the bill to revolutionize
the exchange and collection system of the country; and
I want to tell you that I did it. I know it is not exactly popular among some bankers, but, gentlemen, I contended, and I still contend, that no banking institution
has the right to erect toll gates upon the highway of commercial progress, charging constructive interest, charging
in excess of actual cost for collection and making it a
stated source of advantage and of revenue. Some banks
are going to lose that, but they are going to gain infinitely more under the new system by the increased
facility of dispatching business and by the increased
confidence of the public, and it is going to save millions
of dollars to the commerce and industries of this country. We had to fight for it—had to fight for it in committee, had to fight for it in caucus, had to fight for it
on the floor of the House. When we passed it in the
House, the Senate, yielding to the clamor, struck It out,
but when it came to conference we put it back and there
it is, and I am proud of it.
I could detain you, gentlemen, for hours with interesting things of that sort, but I will not do it.
There is a popular superstition that the Senate greatly
improved the House bill. I will tell you what gave it
currency and how it got abroad. There were a lot of
distinguished statesmen who began to criticise this bill
as soon as it went over from the House to the Senate,
and they gave it Hail Columbia, Happy Land, and then,
after they were compelled to take the House bill without
one single solitary one of its fundamental provisions
altered, they said that the Senate had greatly improved
it. Let us see how the Senate improved it. They first
authorized domestic acceptances. Imagine 25,000 banks,
scattered over a great country like this, making domestic
acceptances, incurring liability without a dollar of reserve behind them, and contingent liabilities at that. Is
there any wonder that Sir Edmund Walker said that it
would wreck the finances of any country on the civilized
globe? Nothing like it prevails anywhere on earth in a
civilized or uncivilized country. And yet that is one of

the things that the Senate did to improve the House bill,
but we threw it out without any hesitation.
Then they put in a provision to take the Government's
earnings from the Regional Reserve Banks to guarantee
the deposits of the national banks—guaranteeing deposits
with somebody else's money. We threw that out.
Then they provided that these Federal Reserve notes
should be used as reserve by the individual banks. The
House thought we were on a gold basis, but that proposed
to put us on a paper basis. Talk about fiatism! We
threw that out. We required instead that the earnings
from this system accruing to the Government of the
United States should be used to put behind the greenbacks now outstanding, so that in a few years they will
be as gold certificates, dollar for dollar, and there will
not be one element of fiatism in any of our American
money.
The Senate did one good thing. It increased the gold
reserve from 35 to 40 per cent, behind the notes and provided a graduate tax over all that the banks should fall
below that. I wanted to do that in the House. The
Banking and Currency Committee of the House and the
House itself would have done it, but the suggestion was
made, "You had better let those fellows in the Senate
think they had some hand in this thing." But as if
ashamed of having done that one sound thing, the Senate
then went to work and reduced the reserves of the individual banks to such an extent that we would have
had inflation, and the house conferees would not stand
for it.
As I have said, they struck out that provision of the
House bill relating to exchanges at par and collections
at cost, and we put it back.
There was one other thing that we left to the Senate,
which we would have done in the House, and the Senate
did not even do that. That was the establishing of branch
banks. We supposed they would do it, but they did not
do it, and the House conferees, Mr. Corbin and myself,
had to do it when the thing came to conference.
The Senate provided that no director of a regional
reserve bank of Class B should be a stockholder in any
bank. They would have gone to the almshouse to get
the directors for the regional reserve bank.
I do not think that holding bank stock is any disqualification. I wish I had all mine paid for. The House, of
course, struck that out.
I want to say to you, gentlemen, that there is not a
single solitary fundamental provision of the House bill
from beginning to end that was altered by the Senate,
and yet because a few people, politicians or statesmen,
wanted to save their face and their reputation for consistency, it has gotten abroad that the Senate greatly
altered the House bill, and as notable a gentleman and
'publicist as Mr. George Harvey, of the North American
Review, has solemnly written it into that magazine in
the current number that the Federal Reserve bill as it
passed Congress could not be recognized as the House
bill as it passed the House. He has taken up this myth
and spread it abroad. It is a superstition. All the Senate did was to raise the saihries of the members of the
Federal Reserve Board from $10,000 to $12,000, which
we supposed they would do, and we gave them that to do,
and to increase the gold reserve, which we supposed they
would do and which we were determined to do if they
failed to do it. There is not, as I have said, a serious
proposition in the Federal Reserve bill as it passed the
House of Representatives that is not there to-day, but
if we had concurred in the provisions put on it by the
Senate of the United States, I do not know what sort of
an estimate the banking communities of America would
have put upon us.
There is one other criticism that I want to refer to
briefly, and that is that we did not consult with the
bankers of the country about this thing. I am ashamed
to tell you how much we did consult with them. The fact

BANKERS' CONVENTION.

is that the bill is based upon a previous hearing at which
the greatest bankers in America attended and gave testimony, and at which representatives of all interests in
this country attended and gave testimony; and after the
bill was drafted it was submitted to expert bankers in all
parts of the country before it was introduced into the
House. I am telling secrets now, but that is a fact. The
bankers were not ignored. I have gotten a great deal of
reputation of one sort and another out of the thing. I
have heard myself described as a patriot and a statesman, and Governor Hamlin put the capstone to the eulogistic references this afternoon by saying that I -am a
genius, and I have gone around appropriating it all with
good grace. It never has feazed me except on one occasion, and that was when I was given a public reception
at my home, and I stood upon the stage and looked over
that audience and saw boys with whom I had fought
chickens and robbed apple orchards and things like that;
and to have myself, in the presence of an audience like
that, described as a distinguished citizen made me feel
a little foolish. But when I get where I am not known
I rather enjoy it.
But, gentlemen, in all seriousness, after everything is
said, I want to say to you here this evening that the
man who deserves supreme credit for this Federal Reserve Act is the President of the United States, Woodrow
Wilson. After that statement I may in all sincerity, and
without any exhibition of immodesty, declare that in my
judgment it is a legislative miracle, and it was wrought
by a supreme patience and unexcelled patriotism, and by
a courage that was never exceeded by any public man
In any public forum of the earth. I watched him through
that trying ordeal. He was perfectly willing to listen to
advice, but so passionate in his desire to serve his people
that he could not be swerved from the path of duty as he
saw it before him. There the credit belongs, and there
I most willingly accord all praise! And let me say to
the American baniers here assembled, if you gentlemen
could know what has been kept out of this bill you
would have a greater appreciation of what is in it. One
reason why I was doubtful of accepting the invitation to
be here was that I knew I ought to be at my post in
Washington, and besides I am fined for coming here.
But look at the suggestion which we have to meet, and
with which we have to contend there, that the Government shall go into a valorization scheme for the benefit
of a single commercial commodity, that the Government
shall buy cotton; that the Government, which to-day is
engaged in framing a afeasure to tax .the American
neohle in order to raise $100,000,000 to make up the deficiency in the public Treasury occasioned by cutting off
imports, shall also tax the American people to the extent of $250,000,000 in order to guarantee the price of a
commercial product. And I, a Southern man, Chairman
of the Banking and Currency Committee of the House,

am upbraided and reproached by my colleagues from my
section for not being willing to wreck the fabric of
American credit in order to subserve that interest. In
the last hours of the fight they wanted to include tobacco,
because I come from one of the greatest tobacco-growing
Congressional districts in the United States. I told them
If they would put in newspapers, one of which I own, I
would not support a proposition of that sort. Every
patriotic American citizen has the greatest sympathy
for the cotton growers of this country. There is not anything that might in soundness and sense be done that
any man would not do, whether he be from Massachusetts or from Mississippi, from Virginia or from California; but it is preposterous to talk about doing things so
foolish and so unprecedented as that. Not only is it
foolish to suggest them, but it is almost unpatriotic to
suggest them, and they will not be done.
That leads me to a concluding thought. Gentlemen,
there are some people who are in this world but not of
It. There are persons who are disposed to deride politics and to exhibit a contempt for public men who,
without discrimination, they characterize as politicians.
I want to stand here and bring against that class of my
fellow-citizens an indictment of responsibility for the
maladministration of government, and for any bad legislation that we may have put upon the statute books.
They are not confined exclusively to bankers, but you
have a large percentage among you. They are men who
toast their heels before their andirons in the evening, in
complacency and indifference to public affairs, and then
on the morrow complain that ward politicians have run
politics as only ward politicians can or will run politics.
I feel like saying to the average American citizen of
that type, whose wail is heard abroad in the land when
anything is done that does not suit him in Congress,
"You are responsible." If these men would attend to
public affairs, if they would take pride and a patriotic
interest in the politics of their country, as it is their duty
to do, there would be less demagogues in public life and
less bad legislation on the public statute books. After
all, the demagogue is worse than an assassin any day.
I am no better than other men, but I reverently thank
God that in my public career I have always done what
my judgment dictated, and I have never asked whether
it was popular or unpopular.
Now I thank you for your very courteous and gracious
invitation, and even more for your rather apparent interest in what I have said. I wish I could have withdrawn
my thoughts from matters that were immediate and imperative at Washington, that I might better have prepared a succinct and cogent exposition of all the provisions of this Federal Reserve Act, but that was impossible, and I hope you will appreciate that I was trying to
serve my country there, and for that reason could not do
better here.

BANKING SECTION.

Preparing the Federal Reserve Banks for Opening.
By c. S. HentrAN, Governor of the Federal Reserve Board.
Board, I wish to exIn behalf of the Federal Reserve
for this invitation. The deliberations
press my thanks
watched with interest by all
of your Convention will be
finance, and the country expects to receive
students of
in the determination
from it most valuable suggestions
problems pressing upon us for solution. I
of the many
necessarily
feel, however, that my function to-day must
most part that of a listener.
be for the
The present crisis, caused by the European war, must
bring home to all of us the real interdependence of nations, and the fact that commercial disaster suffered by
one nation must necessarily, in the long run, be shared by
the others, and that enduring peace is a condition to be
sought for by all.
The duty of the Federal Reserve Board is to administer
the law as enacted by Congress, and I know we shall all
listen with the deepest interest to the distinguished member of the House of Representatives, the Honorable Carter Glass, who will shortly expound that law to you. The
genius and painstaking industry of Mr. Glass, Senator
Owen and the Secretary of the Treasury was in large
measure responsible for it, and no man in the country
is better able than he to explain it.
The Federal Reserve Act, while the immediate result
of the legislation of the present Congress, represents by
no mans a sudden flash of financial revelation out of a
clear sky; it rather stands as the culmination of discussion and debate spread over many years. While it
was a party measure, it was not a partisan measure.
On final enactment it received the support of many who
were glad to forget political differences.
The cornerstone of this legislation was laid by your
Association when, in 1894, it advocated the so-called
Baltimore plan of currency reform. Following this came
other plans—that of Secretary Carlisle, of the Indianapolis Monetary Convention, the so-called Fowler plan,
and many others. Next came the legislation known as
the Aldrich-Vreeland Act, now on the statute books, but
• amended.
None of these plans seemed to satisfy the present needs
and problems of the American people, and finally there
was evolved the plan prepared by the National Monetary
Commission. After long, continued discussion, it became
evident that the people distrusted the centralization
which they believed to be involved in this plan, and no
action was taken upon it.
As a culmination of all these efforts came the Federal
Reserve Act, which became law December 23, 1913.
Under its provisions the member banks will be assisted
by the Federal Reserve Banks in furnishing the credit to
the farmer, the merchant and the manufacturer. When
in complete operation the funds of the people deposited
wider the national system will be brought together in
the vaults of the member banks, and in the twelve Federal Reserve Banks. The assets of these Federal Reserve Banks, and the Government deposits which may
be made in them, will be pledged to strictly commercial
uses, and cannot be used for speculative purposes. The
money of the people will be kept in circulation and a
system of note issue is provided which will in the
truest sense be both elastic and safe. I believe that
the soundness of this legislation will soon be apparent
to all.
In this connection, also, I wish to acknowledge the
fine spirit many of the banks and bankers of the United
States have displayed in helping to restore the present

disturbed financial conditions resulting from the European war.
The American people have demonstrated to the world
the inherent strength and soundness of the resources of
the United States, and our determination and ability to
discharge every international obligatimi in gold or its full
equivalent.
To this end the country has had the benefit of the
statesmanship and sound leadership of the President of
the United States, the trained judgment of the Secretary
of the Treasury, and, as well, the able co-operation of
the Comptroller of the Currency. Furthermore, the cropmoving money, and the legislation authorizing increase in
the so-called Aldrich-Vreeland currency, have gone far
toward re-establishing normal conditions.
Our present difficulties do not appear to arise from
the scarcity of actual money, or its equivalent in bank
notes. There seems to be an ample supply in the United
States, and much more can be issued if there is a real
need for more. For example, the total of Aldrich-Vreeland notes throughout the United States available for
issue amounts to over a billion two hundred million dollars, while there have actually been shipped to banks
only a little over $340,000,000; in the Southern States
alone there are available about $169,000,000, while there
have been shipped only between $50,000,000 and $60,000,000.
The real difficulty would seem to be one of credit.
Mutual trust and confidence have been disturbed. In addition, as to certain great crops, the demand has temporarily greatly decreased in consequence of the foreign
war, and as a result value has left its moorings—the
cost of production. The problem,. normally, can be
worked out only by a diminished supply or an increased
demand. Ordinarily, such a condition would quickly adjust itself, but the suddenness of the shock of war has
led to many plans being initiated, most of which depend
upon assistance from the national Government. We
should see to it that the remedies proposed are not worse
than the disease itself, for no remedy, even if efficacious
for the immediate problem, can be justified if, in the end,
it can only add to our commercial trouble and perhaps
even shake the foundations of our national credit.
Fortunately, the United States treasury is in sound
financial condition. It possesses ample funds of gold
and ample power to increase the gold reserve, should it
ever be necessary. The Federal Reserve Act has added
to the powers of the treasury by providing that the Secretary may issue gold bonds to maintain the parity of all
forms of money issued or coined by the United States,
as well as to strengthen the gold reserve, and it is believed that no Government on earth to-day is better
equipped than the United States to deal with any financial emergency.
The Federal Reserve Banks are quickly approaching
the time of opening and operation. The directors are all
elected or appointed, and as soon as certain necessary
preliminaries have been accomplished, such as the election of officers, securing of headquarters, appointment of
the necessary clerical force, and other preliminaries,
their doors will open for business. There is to be a conference in Washington on October 20, at which committees representing the directors of the various reserve
banks will be present and report as to progress, and it
is hoped that then an authoritative statement may be
made of an early date when the banks will open.
It should be remembered that the reserves to be paid

BANKERS' CONVENTION.

into the Federal Reserve banks will not reach their maximum until after the expiration of three years. At the
opening of the system, however, the reserve banks will
begin operations with a paid-in capital of about $18,000,000, and reserve deposits of about $250,000,000, of which
latter not exceeding one-half may be paid in in commercial paper discounted by the member banks. It has been
asserted that the assets of these banks when they begin
operations will give only a limited lending power. It
should not be forgotten, however, that this lending
power may be greatly increased by the deposits of public
moneys, which the Secretary of the Treasury is authorized, at his discretion, to place with the Reserve banks
as fiscal agents of the treasury; practically all of the
Government revenues, excluding trust funds, could be so
deposited and the Government debts paid by check
against such deposits. Moreover, the Federal Reserve
Act largely increases the lending power of the member
banks by reducing their required reserves. One can state
with confidence that the Federal Reserve system at the
outset will increase the lending power of the national
banks and the Federal Reserve Banks by some hundreds
of millions of dollars, and at the expiration of three
years this will be very largely increased, at which time
the reserves will all be.kept either in the vaults of the
member banks or qf the Reserve banks.
An amendment is now pending in Congress, under
which member banks may keep all their reserves in the
Federal Reserve Banks. If availed of by the member
banks, and to the extent availed of, this will greatly increase the lending power of the Federal Reserve Banks,
thus tending to put these banks at the opening more
nearly in the position they would be in after the expiration of three years, and increasing their power to cope
with present abnormal conditions.
Some people may be of the impression that the organization of these banks has been proceeding very slowly,
but I think some of the difficulties which have had to
be solved will be realized when we consider, for example,
the choice of Government directors, of which there are
three upon the Board of each Federal Reserve Bank.
It was necessary to secure as directors men of ability,
experience and high standing, who could and would agree
to attend directors' meetings and to devote to these banks,
at the expense of their own private affairs, the time neces-

sary for their proper management. The vast area covered by the reserve districts has made this an intensely
difficult propostion to work out. For example, the reserve district of which Dallas is the Federal Reserve city
covers an area of over 430,000 square miles—more than
double the area of the German Empire, excluding its
colonial possessions. This district has a population of
nearly six millions of people, being greater than that of
the Netherlands, Sweden or any South American republic, excepthig Brazil and Argentina.
So, also, the Federal Reserve District of which San
Francisco is the Federal Reserve city, has an area of
over 683,000 square miles. This area exceeds the combined areas, excluding colonial possessions, of the German Empire, France, Italy and Great Britain.
Similarly, the population of the Chicago district is
greater than the combined populations of Sweden and the
Netherlands, or of Belgium and Switzerland. Finally,
five of the twelve Federal Reserve Districts are larger in
area than the German Empire, excluding its colonies;
four of the Federal Reserve Districts are larger than the
total areas, excluding colonies, of France, Italy, Belgium,
the Netherlands, Denmark and Switzerland.
There are many important questions, arising under
the law, which are now pending before the Reserve
Board, and which are receiving its careful consideration.
Among these are clearances of checks, the definition of
eligible commercial paper, and many other important
questions. It is impossible for me to touch upon these
here. I may say, however, that we want light thrown
upon them, and any suggestions emanating from your
body will be carefully and conscientiously considered.
In this connection, I want to emphasize the necessity
of establishing branches of our national banks in foreign countries. We have already approved applications
for two branches in South America and one on the Isthmus of Panama, and we feel that along these lines our
financial energies should operate to the great benefit of
agriculture, commerce and the manufacturing industries
of our country.
In conclusion, I wish to say that the Federal Reserve
Board is fully mindful of the trust and confidence imposed in it, and we shall use all our energies in so administering the law that it shall redound to the best interests of the greatest number of the people of this
country.

The Will of the People.
By MARTIN W. LITTLETON, Of the New York Bar.
Ma. LirrLETow: Mr. Chairman, Members of the Assoiation, Ladies and Gentlemen:
I take it that you have little excuse for asking some
person, so to speak, from the outside, to come before
you, except in the fact that, after all, it may relieve your
attention from the business to which you are daily devoted when you are at home. In other words, if a voice
from the outside can be justified in this assembly, it
must not be upon the ground that he comes to talk to
you of the affairs with which you are familiar, or to
suggest to you things with which you are acquainted,
but rather to speak to you from the point of view which
he occupies, and from the point of view of the outside
world.
Strangely enough, in our country, yet so young, we
are grouping ourselves in professions and businesses to
such an extent that one can scarcely see over into the
other, or understand it. So my justification for what
little I shall say or suggest is the fact that I come from
another profession to talk about something which is somewhat removed from yours.

Our Government, whether it may be satisfactory under
one administration or another, and whether it may represent your or my political faith, after all, is our Government, and it behooves us, at as frequent intervals as
the occasion will permit, to inquire a little into the things
fundamental, the things which are controlling, the things
which are dictating, the things which are finally ruling
its policy.
There is no doubt any longer in the mind of the average man that the phrase, "The will of the people," in
some form or other, after some method or other, is finding its expression in the affairs of the governments of
all the world. There is no doubt that even now, with
the frightful situation which Europe presents, which all
can deplore, and about which all should keep quiet, there
is no doubt but even that, as we see it, reddened with
the blood of a great war and blackened with the ruin
which follows it, is still, nevertheless, an extension, or
will be an extension in the finality of this single phrase
which has.been assigned to me as my subject to-day. A
great writer has said, perhaps only when mankind

BANKING SECTION.
are perfectly wise will the expression of a general will be
perfectly exact; perhaps only when mankind are perfectly good will such a will itself be perfectly good. He
has also said that that is no reason for a disinclination
upon our part to see if we can make effective the docthe
trine of the American Government, and when I say
Government I mean that docdoctrine of the American
the
trine whose influence has washed itself back upon
be felt in every nation of the
shores of the Old World to
earth.
What is the will of the people? That phrase is coeval with the earliest times of the Continent and of
England. It found its frequent use in the Revolutionary period of America. It found its great revival in the
Jacksonian period of our country. It finds its accentuation and emphasis in our own period to-day.
We ask ourselves politically and sociologically what
is the will of the people? Is it that volatile factor with
which you and I are acquainted in our own cities and
towns, which we meet currently about our cities and
towns? Is it that thing which we call in the community "The sentiment seems to be that way." Is that the
will of the people as commonly expressed and commonly
understood?
Let me call your attention to what I think was as
philosophic an utterance on that subject as I have been
able to find. You know that in the English Government
they are divided into the Conservatives, the Liberals,
and the Unionists. A very excellent and clever English
writer has said:
If one reads through a political column in a contemporary newspaper, it gives one thought to notice how
few current political terms carry in themselves any definite meaning. Take such words as occur most often—
"Liberal," "Conservative," "Unionist" Now, it may
be contended that a reading of political history will
show that men called, for instance, "Conservative," have
been standing, as a matter of recorded fact, for some
definite political or economic principle. But such a principle, if it does exist in the minds of men called "Conservative," is not contained in the meaning of their name
as it stands. The Conservative may no doubt claim to
conserve what is good, the Liberal•to free men from what
is evil, the Unionist to join men for a common end. But
so far the three principles are nothing but complementary
and compatible, and the citizen has to read history in
order to find out where exactly the principles of these
claimants did in practise clash, or what particular things
important men of either name believed worthy of being
conserved, or abolished, or promoted. He will find, for
Instance, that the Unionist, so far as he did stand for
something more particular than a belief in union for
common ends, was in fact a Liberal who did not agree
with certain other Liberals that a particular sort of selfgovernment ought to be given to a particular body of people at a particular time. But such a fact as it stands implies no principle from which the Unionist may deduce
why and when men ought to unite, none from which he
may deduce what type of industrial government ought to
prevail in England now.
From names like these the citizen will turn in despair
to seek that of some fairly definite thing which all parties profess to think good. If he is reading a newspaper he may find such a thing under the name "Democracy "—which seems to mean as it stands, "The rule
of the common people." He will notice that all parties
base their claim to support upon the soundness of their
Democracy; he will also notice that in practise the will
of the common people is not done. From these two facts
he will be bound to infer either that Democracy must
mean something definite, or else that the claims of all
parties must be questioned.
Having reflected thus far he will examine more closely,
shall hope, the first elements of politics and morals
we.
—in order to discover, if possible, what precisely are the

real implications of "Democracy," whether it is good
or evil, and how it can be farthest promoted if it is good,
or most readily abandoned if it is evil.
One of the more important facts among those that the
inquirer may first recognize, a fact that should be all
but self-evident, is that the actual experiencing done by
one mind or spirit is not the actual experiencing done by
another, and that therefore it cannot depend, as a whole,
on the direct causing or determining of that other. Therefore it is not that good which is or may come to be"in"
his fellow that the citizen should try to promote directly,
but the conditions of that good.
For his friends that he knows well he may be able, as
a private man, to promote the good "in" them far less
indirectly, and very much farther (with a similar expenditure of energy) than he would be able to promote
the good "in" those that he knows hardly or not at all.
Those, on the other hand, who may be affected by the
end at which he aims in a public capacity will almost
all be persons that he does not know well.
Let us agree to mean by the word "State" in the present context that body or bodies in a community by which
laws are passed and executed.
The acts of a body of men (if such acts there can in
strictness be) are either the sum or else the result of
the acts of its members as such. The members of such
a body or such bodies in this country are separate persons, each aiming, as member, at ends which apply to the
whole community; that is to say, to human beings almost
all of whom he knows hardly or not at all.
It follows, therefore, that the normal function of the
English State ought to be at most not more than the
maintenance of that part of the more external conditions
of the best possible life which no effective unit can maintain with equal public profit. More than this it ought not
normally to attempt
The next question which naturally occurs is, "What
citizen in particular ought to make the laws?" ()ought
the community to be governed by one man? If so, which
one? By a few? If so, which few? Or ought it to be
governed by all? And if so, how? and in what precise
sense? We find ourselves involvel at once in the apparently eternal controversies which turn about such
words as Monarchy, Aristocracy, Democracy, Theocracy,
Plutocracy, Oligarchy, Ochlocracy, Timocracy, Bureaucracy, and so forth.
Let us see how some of the controversies express themselves in our own day.
Looking at contemporary practice, we see in our own
country that one particular man is called the King, that
the act of passing laws is done by a few men, and that
of these few almost all say that they are true Democrats.
We also fincl• it difficult not to suspect that the will of
the common people is not done.
Examining current theory, we notice such terms and
phrases as "the will of the people," "freedom to choose
representatives," "government by the best," "government
by experts," "specialists in the art of government," and
so on.
Let us begin by distinguishing the main aspects of lawmaking. First of all, there is the disposition of things
which it is the purpose of the law-makers to bring about;
secondly, there is the expression of this purpose in an
actual bill or detailed proposal; thirdly, there is the
execution of this purpose in the administering of the law
by the executive officers of the community.
Take the last aspect first. What particular citizens
ought to be the executive officers? Obviously those who
can execute or administer the law so as best to achieve
Its purpose. So far as they are executive officers only,
they ought not to determine the purpose itself; though
the policeman may rightly, in his non-executive capacity,
criticise the purpose of the law he has been executing,
or vote against those who made it In his executive capacity he ought to be, in comparison with the average

BANKERS' CONVENTION.

citizen, a man of exceptional or distinctive abilities or
experience—in short, a specialist or expert.
Again,'what citizen in particular ought to undertake
the expressing of the purpose of a bill? Obviously those
who can do the best—specialists and experts in those
special and particular sorts of knowledge which the details of the bill demand. So far as they are public servants, their office is to express the purpose of the lawmakers and they ought not, therefore, to determine the
purpose itself.
Let us ask lastly what particular citizen ought to determine the purpose of a law—to determine, that is, what
disposition of things ought to be brought about in a community when, as is the case with England, it consists
of persons almost all of whom would not be well known
to the members of any body of men few enough to deliberate together effectively in a council chamber.
It ought to be recognized quite clearly at the outset
what it is that the law-maker is required to do. The
normal function of the State, we discovered, is to maintain that part of the more external conditions of the
best possible life which no other effective unit can maintain with equal public profit. The law-maker ought therefore to be that sovereign power (whether one man or
more than one) whose knowledge includes the best employable insight both into what persons ought to be and
also into what they are. In other words, the knowledge
of the law-maker ought to be the best employable knowledge of human good and of human nature.
Where is this sort of knowledge to be found?
The believer in Absolute Monarchy holds that it is to
be found in some one man. Such a belief does not bulk
very large in current theory, nor do most supporters of
our own limited monarchy contend that one man ought
to determine the ends of national life. And it is worth
while remembering that the ancient kind was very often
an expressor of national purpose, or even an executive
officer. Very often a tribe desired victory over its enemies (deeming it, perhaps, a condition of the best possible life), and one particular man was best able to
achieve it. It was only so far as a tribe did not distinctly desire victory that the kind who won it was determining by himself the ends of the State's action.
Believers in Aristocracy would contend that the required knowledge is to be found in some few—that is to
say, that the best employable insight into human good
and human nature resides in some ostensible minority,
which ought therefore to determine the ends of the State's
action independently of the judgment of the other members of the community.
Against this the Democrat believes at the least that on
any civic question involving that of the goodness of an
end the deliberate judgment of a determining majority
of the citizens is, as a rule, better than the like judgment
of any other ostensible body in the community. He therefore desires the directest possible action of this judgment
on the determination of the purposes to be expressed in
laws. He would contend against Aristocracy: First, that
human beings are not so made that the best employable
insight both into their nature and into the good of which
they are capable can reside in any body of possible lawmakers other than a determining majority of the community; secondly, that even if it could so reside, such a
body is not ostensible; thirdly, that even if it were ostensible to the student, it could not get laws passed and
executed except so fas as it were permitted by a determining majority.
In our own country when we search the names in modern political affairs of those which classify you and me
and our neighbors, we find that after we get beneath
some acute superficial subject, we all come back and
claim the root and branch of the philosophy of our Government, so far as we can, and that is that it is based
upon the will of the people of our country. That phrase
has been used and misused and abused until it has be-

come more or less the song of the demagogue or the object of derision by the Bourbon. On the one hand, the
Conservative has come to despise it because it has been
misused. On the other hand, the so-called Radical has
come to love it because he thinks it expresses something
which will reach the heart of the average man. I propose to deal with it, disregarding my politics and your
politics, and caring not one whit whether I agree with
you or you agree with me, because I take it you wish me
to say what I thought, and not what you thought I
thought when I came here.
All governments nowadays, with the exception of possibly a few, have either actually or professedly adopted
a form of organized public expression; that is, they have
endeavored to furnish a channel through which the popularge judgment and the popular will and the popular wish
might find its adequate expression. They have not succeeded, not one, simply because the machinery by which
those things are done is necessarily inadequate and necessarily ineffective.
All mankind have accepted the essence of democracy,
and by that I mean the essence of the thing of which
I have just spoken—that governments must be ruled by
the consent of the governed. I say all mankind have
done so. All of the Anglo-Saxon mankind at least have
done so. The difficulty is not that you and I should agree
upon the general principle. You would not relinquish
your interest in your government even though you failed
to exhibit on occasion after occasion, as I do. You would
not surrender your right to participate in the affairs of
your city, of your State and of your Nation, even though
indifference overcomes you and lethargy sometimes besets
you in the exercise of that privilege. You would not if
you could, and I believe you could not if you would, surrender the obligation as well as the duty to do for your
city, your town, your State and your Nation, at least
in the maximum of its crises, the service which seems to
you to be best for your country.
The difficulty is we do not disagree upon the fact; that
the rule by the people of the country is, after all, the
rule to which we are committed. What we disagree
about is how that rule is to be applied, how that agency
can be made most effective; and in the end the great
principle of government by you and all your class, and
government by 'me and the class to which I belong, and
government by somebody else's class, is to be made effective to the end that certain great things shall be preserved.
The man to whom I was referring a moment ago, a
little later on in the article which he wrote, made this
observation—he speaks, for instance, about the making
of laws:
"It is at this point that perhaps it ought to be noted
that in England to-day the law-passers," as he calls
the Parliament, "are not the same body of people as
the law-makers." Those who make a law include all
those whose action and influence determine the action
of the law-passers in voting on it, but those who actually
do vote on it constitute, owing to the area and population of the modern national-state, a very small fraction
of the community. It is not within the scope of this
chapter to ask whether in a city-state such as Periclean
Athens the normal function of the State might safely
differ from that which we discovered it ought to be in
this country to-day, but so long as a whole nation cannot meet in the market-place to discuss and vote on laws,
it must at some point express its corporate will through
some machinery of representation. It is therefore the
modern nation-state, and England in particular, that will
be now considered.
Returning to the first objection of the Democrat, we
can rest assured that it certainly does not amount to a
contention that any judgment of any majority in any
community must necessarily be right. Political sovereignty may rightly repose in a power that is not only

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fallible, but even capable of deliberate evil. Obviously,
it must so repose if human beings are to exercise it at
all.
We may now leave this first objection for a moment,
since although it is one that must compel the assent of
any responsible inquirer who will reflect deeply and candidly on his own nature and on that of his fellows, the
Aristocratic theory may more briefly be refuted by the
second and third objections of the Democrat. Those are:
that even if there were such a body it is not ostensible,
and that even if it were ostensible to the student, it
could not get laws passed and executed except so far as
it were permitted by a determining majority of the community.
To the latter of these two objections the Aristocrat
might reply: First, that if there did exist such an os(for
tensible body it would be justified in using force .
instance, the help of foreign mercenaries) to make its
judgments effective on the conduct of the State; secondly,
that we do find in our country to-day that few men can
get passed and executed laws which do not express the
purpose of a determining majority, that these few may
not be the best few, but that if the best few could be
pointed out they, too, could so dictate the ends at which
the State should aim.
The Democrat would rejoin: First, that to the fulfillment of any purpose which involves the good "In"
others, the account of their feeling and the assent of
their will are so necessary that even such laws or institutions as would otherwise succeed must fail, in the
absence of such an acquiescent temper in the governed,
to promote for the best possible life even that part of
its conditions whose maintenance is the normal function
of the State; secondly, that the government of such a
coercing body could not be stable.
Also, thirdly, that even in our own country to-day
the few who determine the ends of the State do find it
necessary to claim that they are governing "by consent."
Even, therefore, if these few were the best few, as the
Aristocrat desires, they could only get laws passed and
executed so far as they could persuade a determining
majority so to allow them. But in strictness a government is Aristocratic only so far as it prescribed the ends
of the State's conduct independently of the judgment
and will of a determining majority. This, without using
force, no few could completely or permanently do—
though the behavior of our modern Parliament does show,
it May be admitted, how far a few, not the best, may
take advantage of a nation's lethargy.
Turning to the second original objection of the Democrat (that no minority is ostensible which possesses the
proper insight to fit it for determining by itself the ends
of national conduct), the Aristocrat might urge that there
have lived men in the past whom peoples have called in
as dictators, and kings or oligarchies on whom nations
have relied to express the national will.
The Democrat rejoins again that it was the people
who did call in the dictator, and that it was the national
will that they wanted expressed, not that of one man or
a few independently of it.
Since the Aristocratic theory is thus provable unsound,
let us return to the creed of .
the Democrat. He believes
that on any civic question involving that of the goodness
of an end the deliberate judgment of a determining majority of the citizens is, as a rule, better than the like
judgment of any other ostensible body in the community.
He therefore desires the directest possible action of this
judgment on the determination of the purposes to be expressed in the laws.
The creed as it stands is, of course, only the very
minimum basis of the democratic faith. Some democrats
believe in "the divine right of the people to govern
wrong if they please," for just as free-will, they contend,
is granted by God even to agents who may abuse it, so
the mere fact that a people act wrongly is no ground for

their being prevented from determining their own life.
To discuss this might involve the question whether freedom is a means or an end, and it will be enough to say
here that although some Democrats may feel that the
suggested minimum understates their conviction, it is certain that no man is a Democrat who does not accept as
much.
In our own country we adopted in the Revolutionary
period a general doctrine, a doctrine that all governments
derive their just powers from the consent of the governed.
This was the Revolutionary period. This was the period in which democracy was used as a destructive
agency; a period in which it was enough to inflame, to
excite, to arouse, and then to use whatever spirit of democracy there was to overthrow or to resist the power
of the Government which was then over us. We never
dreamed, my friends, in the Revolutionary period, which
was just exactly eleven years before the adoption of the
Constitution, we never dreamed then about bow the
organized public opinion or we never dreamed how the
organized will of the people, we never thought how we
can make the will of the people effective, we never
thought how we can enlighten the will of the people, we
never thought how we can be relieved from its dangers
and yet enjoy its blessings.
Our whole purpose in the eleven years between the
Declaration of Independence and the adoption 0 the Constitution was devoted to the use of the aroused will of
the people to overthrow and to get rid of a government of
which our ancestors had grown tired, and to set up another Government of some sort. The distinction being
that Government had not been organized, and was not,
indeed, organized until we reached the Constitutional
period.
Now, it has been said that the Revolutionary period
represented the radical period and the Constitutional period represented the reactionary period. I do not like
either one of those words myself, because I think they
have served more purpose to confuse modern politics
than almost any two words you could employ, but they
have been written down as being descriptive of those two
periods. It has been said of the Revolutionary period
that men then followed Samuel Adams, Patrick Henry,
Otis, and that Otis and Samuel Adams followed Locke,
and that the English writers as in the previous revolutions of the century sort of laid the foundation for Revolutionary doctrine. The fact, however, is that no man
during the exact Revolutionary period, even the men who
framed the Declaration of Independence, conceived of
the method, when they had gotten rid of the Government,
would employ the will of the people as the great agency
for Government. After the Revolution *as over, after
our country had bad its independence, after the long
cherished point had been reached, after this and other
places which produced Revolutionary characters had rolaxed into a period of contemplation and silence, after no
longer the seas were swarming with English vessels, and
no longer our Coast was riddled by English ships, and
we had come to the question of how we were going to
use the great power we had achieved, how shall we take
this Continent, how shall we take this great agency,
known as the will of the people of our country, and make
it an effective agency for the government of our country?
Those men organized under the ARTICLES OF CONFEDERATION, which failed, hopelessly failed, because
shot through and through with jealousies; because each
State suspected the other, because each State suspected
the general Government, because each State held in its
hands the purse and the sword, because it commanded
everything that meant power and energy and strength on
the part of the Government, and, like a house of cards,
it went, and went rapidly.
Our first President. Virginia's first President, the man
about whom you all know because he secured a lot in his-

BANKERS' CONVENTION.

tory where nothing but veneration and gratitude could
reach him, who sprang from the bosom of this old commonwealth and who for eight weary years led the striving revolutionists—he saw what his eyes, dimmed with
tears and his heart heavy with the burden, that the Government after all that had been reccued from the power
and influence of a country that had threatened us with
taxation and burdens was now about to fall to pieces.
Eleven years had elapsed since another great Virginian
had set on fire the political literature of the world with
a great Declaration of Independence. Twenty years had
elapsed since, with flaming eloquence around these very
hills, there had been made the declaration that our Government must resist the agencies of other governments.
And now the time had come to say what, after all, will
we do with the liberty, what will we do with the democracy—gone the Kings with their glittering crowns, gone
with the towers, gone all the agencies of the old world,
and nothing left us but the memory of Sir Edward Coke;
nothing left us but the subtle wisdom of Montesquieu—
what shall we do, after all now, that we have the power,
with this Government? Our articles of confederation
have broken down. The States are powerless,.the Nation
is powerless, our treasuries are empty, the sword has
fallen from our hands; discord is running through and
through the councils of our Nation; what shall we do now
to preserve and make effective the great principle for
which we have contended, which we have vindicated, and
which we have appropriated to ourselves as the everlasting charter of human rights?
That was the period of American history that tried
men's souls. It was glorious, indeed, to have fought in
the Battles of the Revolution. It was splendid to have
been able to be in the outbreak of the Revolutionary
spirit, but it was more burdensome still to be confronted with the problem of how we will organize the
public will, or the will of the people, and make it effective. Men were not mistaken in those days. They held
no chimerical ideas that in the mass you can find initiative, or you will find people who will attend to public
business. They understood that, as the King had ruled in
other lands, we must have something to take his place.
They understood that, as the cabinet had been master in
other countries, we must have something to take the
place of that cabinet. They understood that, as there
had been some sort of common consent of rulership in
the old country, we must have something to take its
place. And so there ensued what was called the reactionary period in American history. Called reactionary, I
know not why. I have before me a volume of a most
eminent author, a most estimable gentleman, who has
chosen to use that phrase. I would not dispute with him
upon any grounds of scholarship or authorship, but I
would dispute with him if he undertakes to characterize
the period of constitutional discussion and constitutional
adoption in this country a reaction on anything, because
it was the most progressive and far-reaching of all the
things that were done in the history of the American
Government. The period ensued, and the question arose;
What will we do to organize Democracy? You and I
agree on Democracy generally, but we may not agree upon
how it may be organized. You and I agree that the will
of the people shall rule, but we may not agree on how
that will shall be ascertained, and what kind of a will
shall rule. I, for one, find all the pages of the earlier
literature of our country, brilliant as they are, having
but one note running through all of them, and that is, it
is not the volatile will, it is not the sudden will, it is not
the transitory will, it is not the hot impulse, but it is
the settled and enlightened will of the country that was
written down as the basis of Democracy in this country,
and was intended to rule.
How did they go about it? They had to have a constitutional convention. I hope you will bear with me on
what seems like old things now, because a frequent recur-

rence to the fundamental things governing our country
is but an inspiration to keep us straight on the path that
was intended that we should go.
They were confronted with the question of preserving
three things, without which every civilization is stripped
of its blessings and every period of human history is
robbed of its attraction, life, liberty and the pursuit of
happiness. These were the things which had to be preserved; these were the things upon which other governments in other periods and other influences had encroached; these were the things which they had been
denied; these were the things against which it seemed
that the mother country had most offended. And so it
was in some form to make secure certain, definite great
rights. First off, we should have participation in our
Government. In other, words, in some form we should
ascertain the public will, and do the public will. We
should ascertain what the will of our country was, and
do that will, as agents of it.
But there were certain other things which our fathers
saw, and which we to-day cannot fail to recognize. There
were restraints which they not only desired to impose
upon the Government, but they desired to impose upon
themselves; there were restraints which they had found
ought to have been imposed upon the King, but, not having been imposed upon him, if any other government
should be erected here, it must be a government that must
suffer those restraints to be imposed, and also restraints
upon themselves.
Now, my friends, you have heard talk about the rule
of the majority. No man doubts that the determining
will of the majority in this country, in regard to all questions that have not been put beyond the reach of the
majority, is absolutely the solemn doctrine of our republic. But there were certain things which they said they
intended to submit. Not to leaders alone, not to makers
or to writers, but to the people themselves on the adoption of the Constitution, adopting it for the purpose of
saying there are certain great principles which stand for
the civilization of which we are the exponents. My life,
my liberty, my pursuit of happiness; the things which •I
may acquire, the things which I may do, as Rudolph Von
Erringe said in his wonderful little book:
"My property is but the periphery of my person. I
have transfused my blood, my muscle and my brain in
it until it has become the boundary line of my personality. The man who assails that assails me, because. it
belongs to me," speaking essentially of his private property.
So, then, they were confronted with preserving certain
rights which antedated the Constitution. They were confronted with preserving certain rights which should not
be disturbed, except in a certain way; and those rights
may not be embodied in the great trinity of rights which
were expressed by Mr. Jefferson when he wrote the
Declaration of Independence. It was expressed in New
Hampshire; it was expressed in Vermont; it was expressed in Massachusetts; it was expressed in all the
New England States, in Virginia, in all of the original
e
States: Life, liberty, and the pursuit of happiness. These
things should be locked up and securely imbedded against
what? Not only against the encroachments of those from
without, but against the sinister advances and influences
of those from within; not only against the man who
would rain his blows upon the outside of the Government, but against the man who, inside his Government,
would undertake to dismantle and destroy the Government and undermine those principles.
What is my life if I may not go forth in conquest of
the earth's surface in security? What is your life if you
may not go forth unharmed and unhindered and reap
the benefits of your labors. What is life here, or elsewhere, if I may not go out, captain of my soul, within
the orderly pursuit of my business and achieve all I can
achieve and bring, home all honestly I can bring home

BANKING SECTION.
and say: "This is the result of my labor and my trials
and my tribulations?" They were trying to write that
into their government.
And so, in attempting to make their Constitution they
wrote certain great rights, which are expressed in short
phrase, but without which the stability, the future, the
endurance of the government under which we live would
have been imperilled, as the old articles of Confederation
had imperilled the first.
This Declaration found its expression in the Constitution of our country. I know now how unpopular it
is in certain quarters to speak of the Constitution of
the country. I know how men say: "Oh, well, what has
the Constitution to do with it?" I know how men say:
"We live in a different age." I know how frequently
that expression is made. I have heard men say: "I am
not bound by the Constitution; it was not adopted during my period of time." Let me remind you, my friends,
that the Constitution which exists to-day came from your
fathers, your grandfathers, and each generation has
acquiesced in it, and each generation has had an opportunity to change it, and until they change it, it stands as
the expressed will of the people of this country.
So you ask me what the will of the people is? I tell
you the first and final, and sublime will of the people is
found in that document which was held stable and in
check the great agencies of this great Government. You
ask me what the will of the people is? I tell you, you
will find it in that document which was vitalized by the
philosophy of that great jurist, whose little home sits
over here in the city of Richmond, now with the banner
gayly fluttering there, and the plain tablet on it: "The
Home of John Marshall."
Men have searched all about and said: "I am going to
do the will of the people." I have heard it in Congress
and out; I have heard it on the stump, North, East, West,
and South. "I desire to do the will of the people." Most
of them are trying to do the will of the people sitting in
front of them; I believe in doing the will of the people
that wrote it in the Constitution.
A strange thing occurred within the last ten years.
You would think it was incredible, but as a matter of
fact, our courts were put on trial. Now, I have had as
much quarrel with the courts, personally, as anybody
else. I think they have decided more of my cases wrong
than of most anybody's cases I know of. (Laughter.)
But you have heard men high in authority saying that
the courts are frustrating the will of the people; that
the courts are in the way of the expression of the will
of the people; that Democracy cannot attain its highest
point, because those archaic institutions are sitting in the
way of this great flood of public opinion that would fain
rush on.
Now, what does that mean? Suppose the general assembly of Virginia had passed an act and the courts take
up that act, and they say: "This act is contrary to the
constitution of Virginia." The people who believe in
that act say again: "The courts are frustrating the will
of the people. The people elected the Legislature. They
sent them there. They intended that the Lgislature
should pass that act. The Legislature did pass it, and
now the courts are standing in the way of it." Then
the cry goes out,"The courts ought to be put under some
sort or surveillance or recall, or something of that sort,"
and that cry has gone from State to State and from place
to place, until it became almost subversive of the dignity
and honor of the judiciary of this country. Now what
was the real philosophy of the thing? The judge sat on
the bench. Over here was the constitution of your State
of Virginia, a constitution adopted how? It was the sublime, the 'solemn, the expressed will of the people of
Virginia. It was the highest example of the ascertained
will of the people of Virginia. It was the only known
force of the will of the people of Virginia on the subjects
to which it related. It was the only way in which you

could search into the hidden domain of the will of the
people of Virginia on the subjects to which it related.
The courts said: "This act of the Legislature did not
come into existence at all. It could not come into existence at all. Why? Because the registered will of the
people in the constitution was here first and forbade its
existence. No matter how many acts of the Legislature
might be passed like it, they could not come into existence
so long as the will of the people was thus expressed in
the constitution of the State." And forsooth there were
men who said, "The courts are frustrating the will of
the people," when, in fact, the courts were defending the
will of the people, and were enduring public shame and
abuse for defending the will of the people against acts
which attempted to frustrate that will. The same illustration may be applied to Congress. Suppose the Congress of the United States should pass an act which in a
measure diminishes the interest you and I have in the
common properties which we own. I do not say they
would, and I do not say they might not. But, suppose
they did. How would we find out whether the thing
which we had before it was passed was still ours or not?
We would naturally address ourselves to that tribunal to
which we are accustomed to go to seek redress. Now,
when the court says that act of Congress is invalid, why
is it invalid? Not because the court says so; not because
the judge says so; not because the judge wishes it so; not
even because the whole bench wishes it so. It is because,
coming from the lips of the sainted dead, they wrote into
the Constitution of the country, and you adopted it as
your will, that it was the will of the people of this country that no such legislation as that should be passed;
therefore, the courts became the vindicators of the will
of the people as expressed in the Constitution of the
country.
Now you say, how do you ascertain .
the further will of
the people. I want, if I can, to leave with you only one
Idea—and if I do that I shall be successful—that the
live, the vital, the stable, the everlasting, the enduring
thing about our Government is the will of the people,
and that will of the people, enthroned and unassailable,
is found in the organic law of our land, In the nation,
and in the State; and if, desiring to supplement that will
by legislative act they choose theii public servants and
send them there to do it, that is their right, always having regard for this, that as to certain things they have
settled them until such great revolutionary time comes,
when they choose to unsettle them. If they want to
amend the Constitution of the United States they must
do it in that way which solemnly, earnestly searches the
will, the judgment, the conscience, the heart, the very
soul of men, and not in some transitory passion to the
solemn will of the people as written into that great document.
Now I hark back to what we started with. Democracy,
the love of the rule of the people may be universal. I
belong to the people just as much as the men who protest
that they belong to them more than I do. But I believe
it my duty, so long as I shall contribute my little to the
public service, to see if I can so direct public opinion and
help to direct it that the truth, the enlightenment, the
justice, the patriotism, and the service of my country
may be the sole consideration by which I am guided.
Now having set up this great framework in your State
and in your nation, this is the will of the people, running back from here, clear back to Madison and Monroe
and Hamilton and Jefferson and Franklin and all the
illustrious men; yes, running back to the Civil War, and
after the Civil War running back to those who in turn
adopted it.
Now, how is public opinion otherwise expressed? How
do we ascertain the will of the people in any other way?
By the acts of our legislatures and our courts consistent
with the hitherto expressed will of the people in
the
Constitution. Supplemental legislation of different
kinds,

BANKERS' CONVENTION.

new policies and .the new order of things go on from
year to year. The people express their will by choosing
the men whom they wish to express their will for them
in these public places, and thus grows up the great body.
of statute law apart from the Constitution of your country. That statute law represents the supplemental will
of the people as it has been expressed, consistent with
the sublime, the more solemn expression of it in the Constitution of the State and of the nation. Thus there grow
up the two sources of the ascertained will of the people,
and the only two sources by which that will is ascertained.
Now I plead for one other thing only, and that is that
as we are committed to the great doctrine of government by the people, that doctrine is not to be rung as
changes in a political meeting, but to be talked of amongst
bankers; because our institutions which you represent
have been washed up on the shore by the great wave of
public opinion, whether you consult it or agree with it
or not. The great business upon which you are engaged
to-day is to try to ascertain how and in what way these
changes take place in your laws governing your business,
and how the inscrutable processes of public opinion have
brought it about, not always accurately, but you are committed to it. It is your doctrine. It belongs to us, and
unless we are willing to enlighten and direct and guide,
and be brave and honest in front of it we may as well
abandon the project of our Government and turn it over
to the mob at last. I complain of the conservatives. I
am a conservative, but I complain of them and I have
a right to complain of them, because, with the finest page
of doctrines ever given to men to promulgate, with the
finest creed ever written for men to support, with the
finest argument ever put upon the lips of men to utter,
with the most splendid resources to convince the world
of the justice and stability of their cause, with every instrument in their hands for public education and public
enlightenment, they have left the demagogues and the
what-not go about the country and take judgment by
default against them. One of my friends said he thought
the conservatives had got too cowardly to fight and too
fat to run. Conservatism is an affirmative doctrine and
not an empty negation. Conservatism comprises all the
admissible evidence which can be introduced to prove the
cause of our present civilization. Conservatism refuses
to discard experience and to accept experiment. Conservatism refuses to turn from the tried and tested things,
and to follow, under the influence of a superheated imagination, the course of other men who would take us into
untried fields. Conservatism is not something to make
men retreat. It is something to make men attack. Conservatism is the affirmative doctrine of the civilization
under which we live. Why, I said the other day that
representative government was the finest example of
human progress the world had ever seen, and a man said
to me: "That is reactionary." I said: "What is reactionary?" He said: "The rule of the people is the
progressive thing." I said: "The rule of the people? Do
you mean that the people shall make the laws in the
town meeting?" He said: "Yes." I said: "You mean
that all the people shall gather together in some way and
make the laws and run the Government?" "Well, yes,
as far as they can." "And you call this progressive, and
you call me a reactionary, because I believe in representative government. Do you know what you are? You
are harking back to the exploded doctrine of Athens, and
I am progressing to the illustrious service of the great
statesmen of America who for the first time wrote that
doctrine of representation into any government in the
history of the world." He said again: "You are a reactionary, because you are asking the courts to hold that
legislative acts are unconstitutional." "You say I am a
reactionary; and how would you have it?" He said: "I
would have it so that when the Legislature or Congress
passes an act it would be the sovereign act of the will of

the people of the country." I said: "And what would
become of your constitution?" "Oh, they will determine, whether it is according to the constitution or not."
"And that you call progressive, and you call me a reactionary." Never until first you destroy that instrument
fashioned by the genius of the early statesmen shall that
great tribunal set up as the keynote of the arch of a
great government be thrown down, never until we turn
our backs on Madison of Virginia and Varnum of Kentucky and Marshall of Virginia and Wilson of Pennsylvania, and all the glorious minds who carved the very
light of their genius upon the structure of our institutions, and finally determined that the Supreme Courts of
the States and of the nation should ultimately determine
the constitutionality of an act of Congress. Never since
man set his foot upon the sands of time had it been dared
to be suggested that such a doctrine could prevail; and
yet I am called reactionary.
Gentlemen, the will of the people is your will and my
will and the will of our neighbors and our brothers, high
and low, rich and poor. The heart of the people of this
nation is sound to the core. Men do not wish to do
wrong in the majority. Men do not wish to inflict evils
.
in the number. It is the exception. Men do not wish,to
have this Government go astray. It is the exception.
There is in every man, native or foreign born, old and
young, rich and poor, a spark which, if but once lighted,
a flame which if but once burned, will continue to keep
alive a blaze on all the altars of human liberty and just
government. It behooves you, it behooves me, and every
man who lives beneath our flag to preach the true doctrine of that American Government and the significance
of its institution.
I have but one speech to make. I have almost made
up my mind if I could make another, I would not; and
that is to speak for nothing but the institutions of my
country. I have but a short time to stay, as you have, in
the transitory events of this world. Those who have
gone before us have left their shafts white and beaming
in the night. They have left their inscriptions written
and carved against all the rain-washing influences of
time. They have done it because they served their country. I believe with you and your homes in your own
respective cities and towns, if you can but take the instruments that lie in your hands to spread the gospel of
American institutions and American living and American
learning and the doctrine which underlies our great Government, that service will surpass any of the public•services which men can render who have been elevated to
public office. Ours is a glorious country, made still more
glorious as revealed in the full light of the cataclysm
and conflagration of Europe. Ours is a country now in
which it is a wonderful thing to be a sovereign, because
somehow you feel that no man can take the sword in his
hand unless that hand has been clasped to the sword by
the common judgment of the common sense of mankind.
Believing so, I say that every man should constitute
himself a missionary to make the country understand the
questions which the country is to meet if, after all, we
embark upon this great project with a minimum of one
hundred millions of bleeding hearts and throbbing brains
and aspiring and burning ambition. This republic is
teeming with the energy and the glory of a great light.
As that influence is exercised, as it is stabilized and
made strong, as men go out to tell the truth and as the
world understands what the truth is, to that eitent is
our republic secure, and its security therefore rests with
every man who has an agency in his hands for its education.
I hope, I believe, that the great century that is coming
will, after all, so far as this side of the world is concerned, record a very resplendent reach of time in which
liberty and peace ultimately—ultimately, because dictated by the judgment of mankind—will build their kingdoms in the hearts of men and will gather the harvest

BANKING SECTION.
of genius and toil in which Reason must strike from
the hand of Force the sword of hate and take from the
heart of the world the germs of grief, in which conscience
must, after all, smite the thoughts of wrong and fill the
mind with mercy's sweet refrain, in which under this
great democratizing influence of ours we shall be lifted

to that place and follow that course towards which all
the nations of the earth will look, marching down the
era of time that illumines the pathway leading to destiny, beyond the reach of our poor impoverished
vision, but happily within the province of God. I thank
you.

The Case of the Lost Million.
By JAMES M. BECK of New York City, formerly Assistant Attorney-General of the United States.
Mr. President and Gentlemen of the American Bankers
Association:
I suppose that in the first place a sense of curiosity
may have been aroused by the announcement of your
president as to the title of the address. I sincerely hope
that I have not wakened any false expectations on the
part of any member of this Association that somewhere
in this present day there is a million lying loose which
you could add to your deposits. The million to which I
have reference belongs to an old standing and famous
controversy that figured in the diplomatic intercourse of
this country and which is closely interwoven with the
earlier financial history of a new republic and indeed
with the very conditions under which this great nation
of ours became a sovereign State.
Perhaps I should apologize to this body for intruding
on a serious convention with even an historic theme, but
I did so upon the assumption that speaking as I was in
the closing hour of the Convention, perhaps you would
welcome something more than a mere abstruse discussion
of' some technical financial problem or some discussion
of a politico-legal and therefore current interest. So
far as the technical problems of finance are concerned, I
am afraid that my position is very much that of Charles
James Fox, the English statesman, who once admitted
his ignorance of finance by saying that he had not the
slightest idea what consols were except that they were
something that were always going up or down, and that
he generally preferred them to go down because he noticed that when they were depressed a similar state of
mind characterized his great political rival, William Pitt.
Perhaps I could match that same story of ignorance on
the part of a man in public life with a story that I heard
some years ago. Perhaps I owe you an apology for introducing an historical subject with a story, but there is a
distinguished member of Congress, now a member of the
Senate, of whom it was told that in the days preceding
the McKinley election he predicted from one end of the
country to the other, wherever he appeared upon the rostrum, that there was some mysterious parity between
wheat and silver, and that as silver went up wheat
would go up and as silver went down wheat would go
down; but after the election, unfortunately for his prediction—and he is not the only political prophet that has
occasionally done that—wheat continued to rise and silver continued to fall. Meeting the Senator one day in a
club a friend said: "How do you reconcile your prediction with subsequent events?" He said, "There is nothing inconsistent. Subsequent events absolutely demonstrated all I said upon the stand." His friend said,
"Where is that wonderful parity between silver and
wheat of which you spoke?" He said, "It is this: Don't
you see that if wheat continues to rise and silver continues to fall they will he on a parity per bushel?"
Let us consider the situation at the beginning of the
Revolution. That revolution was an act of sublime audacity. It is very hard for us to-day, in this hour of our
acknowledged power and almost invincible strength, to
appreciate that no reasoning man could, at the beginning

of the Revolution, regard as more than a remote possibility the triumph of our cause. So much was this the
fact that, if we were able to take the utterances of the
great leaders of the Revolution at the beginning of the
struggle, we would find that there was hardly one who
did not disclaim any purpose whatever of separation from
the mother country.
The desperation of our cause was not due to the lack
of fighting men. We had in this country, it is computed,
about 2,100,000 white inhabitants, and, assuming that
half of these were men, it left a homogeneous population,
descendants of pathfinders and pioneers, men accustomed,
for the most part, to the musket and to hardship. As a
result, we had a population that ought to have been able
to have placed in the field at least 50,000 men, and even
with the meager facilities of transportation we would
have been, if other things were equal, invincible to any
force that England could send against us.
But apart from the fact, which we now in our patriotic pride are apt to ignore, that the people of the
colonies were by no means agreed as to the policy of the
Revolution, a very considerable proportion dissenting
from it, and still another proportion adopting a shifting
attitude of waiting for the issue of the struggle as it
proceeded, there were then many other circumstances
which we must take into consideration. We had at that
time not a single manufactory of powder in this country. It had been the policy of the lords of trade which
governed the colonies to strangle American industry,
and as a result there was at the time the American farmers fired the first shot on the village green at Lexington,
not a powder mill in the United States. There were, so
far as can be accurately stated, only two manufacturers
of muskets, and those painfully inadequate to carry on
any campaign of even short duration. The result was
that while at that first shot that went around the world,
sixteen thousand men before that week was out had
gathered at the gates of Boston and besieged Gates' army,
yet they were not only without tents, and obliged to live
in rude huts, constructed of sand and dirt; and without
uniforms, but they did not have powder enough to last
more than a few months.
The Massachusetts Committee of Safety made an accurate estimate of the existing supplies for the hastily improvised army, and here it is:
On April 19, 1775. the Committee could only count
twelve field pieces, 21,000 firearms, 17,000 pounds of powder, 22,000 pounds of ball; and for food, 17,000 pounds
of salt fish and 35,000 pounds of rice. Such was the destitution of the army in that which is the food of an
army—namely, powder and shot.
As these statistics show there was barely a pound of
powder apiece for each soldier, in a war that might last,
as it did last, for years. 'So destitute were they in the
wherewithal to fight, that Washington, when he assumed
control at Cambridge, had kegs of sand labeled "powder"
rolled into the camp in order to delude his soldiers into
the apparent security that there was plenty of ammunition. That was the main mason why Washington's rap-

BANKERS' CONVENTION.

idly mobilized army of 16,000 minute men shrank nearly
to 3,000 after his leaving the siege of Boston and was
defeated in New York, and fled in orderly retreat into
New Jersey. That was so plainly the fact that so great
a man as Franklin—the wisest man in the eighteenth
century—actually advocated the use of bows and arrows
in order to fight the invader. While the idea was absurd in the extreme, it showed the desperation of the
cause, that so great a man could gravely advocate that
with bows and arrows and scythes and farming implements, they could face the trained grenadiers of the
British army. And Washington—the great hearted,
leonine, magnanimous Washington—greatest in soul of
all men since the tide of time began—so clearly recognized the desperation of the cause that, to quote his own
language, he says: "We must then retire to Augusta
County in Virginia. Numbers will repair to us for
safety, and we will try a predatory war. If overborne,
we must cross the Allegheny Mountains." So that all
that that man, whose courage seemingly never failed him,
could see in the immediate prospect, was that there might
be, as in the case of the Boers in South Africa, a great
trek across the mountains into the unbroken wilderness.
It is recorded that men later went about the streets
of Philadelphia and begged the pendulum off the clocks
in order to turn them into lead bullets, and the remotest
settler upon the outskirts of the wilderness would give
up his powder horn in order that the few ounces of the
indispensible commodity could be given to the general
store, and some complained that they were left defenseless from the savage foe. Where could these brave men
look for any relief? What probability was there that any
nation would aid them? Remember that not only was
England then the first power of the world, and no nation
would without the greatest hesitation challenge that
power by openly helping us; not only had we disclaimed
any attempt to separate, and therefore any invasion by
any foreign power would be as if England was to-day to
Interfere in our mining war in Colorado, or as if we
would interfere in the present strife in Ulster. There
was also this very substantial reason that France, as
every other European country with the exception of
Switzerland, was an absolute monarchy, and why should
their governments encourage in the smallest degree our
revolt against authority. How then, did it come that
France, laying aside the prejudice against the English
Colonial yeomen, who had climbed with Wolf and his
English grenadiers the heights of Abraham and wrested
the Canadian Empire from France, come to help us?
My client, may it please the court, Pierre Augustin
Caron, was the first and most potent factor in reversing
France's policy and making her our ally. Long before
Franklin reached Paris, late in 1776, and before there
was a suggestion of an open alliance—France was secretly
helping us; but this was due to my client, for whose claim
to gratitude I am pleading at the bar of this court.
Caron was the son of a watchmaker in the city of Paris,
and himself a watchmaker. He was not without education. His father was a man of intellectual force and
varied accomplishments, and his four sisters were accomplished musicians. When the day was over, Caron, working as he did from seven in the morning until six at
night, at the bench in the shop, the evenings were spent
in literary work, and, especially in musical pleasures, in
which all the family were proficient.
When young Caron, who received a very limited school
education, was twenty-one years of age, he invented an
Improved escapement to a watch, which made it possible
for watches to be made far smaller than had ever before
been possible. In an imprudent moment he showed his
invention to a• rival watchmaker, and was surprised to
find a few weeks later in the Journal of the Academy of
Sciences of Paris the announcement of his invention
made by his disloyal friend, as his own.
At a time when justice was administered with slight

regard for human rights, and frequently bought and sold,
an unknown watchmaker of twenty-one would not have
thought that he had very much opportunity for redress
against his rival for stealing his invention. This young
Caron was, however, a man of unusual attainments, and
he wrote a memorial to the Academy of Sciences so
cleverly worded that he not only persuaded them to look
into the case, but, like Byron after writing Childe Harold, he awoke to find himself almost famous in a night.
A committee of inquiry was appointed, which reported
in favor of young Caron, and he thus won in his first
contest a signal victory.
This probably suggested to his mind that possibly there
might be a larger career for him than at the watchmaker's bench, and for this there was abundant reason.
He was a man of more than ordinary personal beauty,
of engaging presence, brilliant and witty in conversation,
with a mind that even in his last days and during all his
troubles never failed in effervescent gayety, and gifted
with the pen to a degree so remarkable that his writings
are to this day among the classics of French literature.
The day of the commoner was then dawning in France
and penetrating even the court of Versailles, so Caron
determined to try to climb the slippery ladder of court
preferment. He went to court at Versailles, Louis XV.
being King, and opened his career by presenting the King
with a watch, and followed this up by presenting the
King's reigning favorite, the Marquise de Pompadour,
with a watch so tiny that she could wear it as a ring
upon her finger. She and the King were so delighted
that they gave the young watchmaker an audience, and,
presuming on this familiarity with the court, he assumed the title of watchmaker to the King.
With this first start he waited an opportunity for a
larger field of usefulness. Louis XV. had four daughters
that were very fond of music, and young Caron could
play, with a great deal of proficiency, the flute, violin,
and also an instrument that was comparatively new in
France, the harp. When the young princesses heard
that, they sent for Caron, and asked him whether he
would not teach them to play the harp, and thereby he became for the princesses a kind of arbiter elegantiarum,
a kind of purveyor to the royal pleasures of the young
ladies, and whatever they desired to arrange in the way
of social pleasure of any kind, or in the matter of studies,
was arranged through young Caron, although he was
simply a commoner.
Then, looking about for further opportunity, he found
it in the wife of an officer in the court, who was known
as the clerk of the King's kitchen. As you may
remember, Louis XV, as his father, the so-called Sun
King, always dined in public. The result was that the
serving of the table was a pompous ceremony—two
guards went ahead, and then came the comptroller of
the King's kitchen, and then various lackeys with swords
to their sides, and thus a little army, accompanied the
King's roast until placed safely upon the royal table. On
the death of this clerk of the kitchen, Caron married his
widow ,and gained the late husband's position.
At that time he was a comparatively poor man, and
to live in a court as luxurious and profligate as that required a considerable expenditure of money. It so happened that there was at that time a rich contractor
named Duverney, an army contractor and banker, who
had made a great fortune. Duverney, following In the
manner of a great many financiers of the present day,
determined to build a philanthropic institution that
would attest his public spirit, and so he built on the
Champ de Mars, where you could see it to-day, if you
were so fortunate or unfortunate as to get into Paris
under present conditions, a military school. He was
very anxious to have Louis XV. give his school the prestige of a royal visit, but the indolent and luxurious King
refused to do so. Finally ,Duverney heard of this resourceful Caron who was making such marked headway

BANKING SECTION.
at court, and he enlisted his good offices to arrange the
royal visit. Caron took it up first with the princesses,
Induced them to visit the school, and then influenced
finally
them to ask their royal father to do so; so that
by the more intimate members of
Louis, accompanied
school.
his family, made a visit of state to the Duverney
pleased with Caron's resourcefulness
Duverney was so
young Caron rapthat he took him into partnership, and
the manner of those days, when
idly became rich, in
with inordinate
army contracts were enormously swollen
•
profits.
In the court, where almost every man had noble blood
in his veins, Caron was naturally subject to all manner
of insults, and was not liked by many because he was
a commoner. It was still regarded as the height of presumption for a commoner to penetrate within the sacred
precincts of that court. On one occasion a group of
courtiers wanting to insult him, one of them took out his
watch and said: "Will you be good enough to repair my
watch? It is out of order." Caron, knowing that the
man intended to insult him, said: "Be It so; but I have
not practised my art as a watchmaker for several years.
I fear I have grown somewhat awkward, but I will try."
He then deliberately let it drop, and it broke into a thousand pieces, whereupon, bowing sardonically to the courtier, he walked away.
Another courtier, who was an expert swordsman, challenged him to a duel, and it illustrates the fine chivalry
that existed even in that most profligate period, that,
after this man deliberately picked a quarrel with Caron
and agreed to fight in a lonely part of the royal forest,
without seconds or witnesses, because of the strictness
of the laws against the duelling in France, that after
Caron had run his challenger through the breast and
saw blood gushing from his wounds, he was sure, as the
man was sure and as it proved, that it would be fatal,
told him to fly, inasmuch as it meant aland the man.
most certain punishment in the Bastile for Caron, Caron
refused to do that without first trying to send this man
succor, even at the possible expense of his liberty. He
went to the nearest town, aroused the surgeon in the middle of the night and told him where he would find this
wounded man and then betook himself to Paris, in order
to determine what his next step would be. The man lingered for nine days, and although he was pressed by all
his family and friends to reveal the man who had given
him the fatal wound, he died with it a secret. The fine
chivalry of this dying man thus protected Caron from
punishment. Caron, not knowing this, finally determined
to go back to court and face the music. He went to the
princesses, whose closest friend he was, and told them
the difficulty he was in. They spoke to Louis XV., who,
In his indolent way, said: "Oh, well, arrange it anyway
you please, only do not let me know anything about it."
The result was Caron escaped any punishment.
Now comes the second great contest in Caron's life that
gives him interest as a litigant. You will find here, gentlemen, an article to the judiciary that is not only famous
in the history of France, but which perhaps never had
an equal, considering the unequal 'odds against which
Caron pleaded.
I should first explain that Caron, having bought a
fictitious title, had assumed the name by which he is
best known in history. Henceforth he was Pierre Augustin Caron de Beaumarchais, and he is now known in the
history of the stage and literature simply as Beaumarchais.
His partner, Duverney, having died, leaving a nephew,
whom Caron had befriended and whom Duverney had disinherited, and another nephew to whom the estate was
bequeathed, who therefore had a great grudge against
Caron and who was a very influential man in the French
court. His name was Count de la Blache. Upon his
uncle's death de la Blache alleged that Caron was
indebted to his uncle's estate, and Caron produced

a receipt which showed that, far from owing Duverney's
estate anything, there had been a mutual cancellation
of debits and credits, and in point of fact the Duverney
estate owed him about 15,000 francs.
La Blache charged that the instrument was a forgery,
and instituted a suit against Beaumarchais to cancel
the document as fradulent and forged, and to recover a
very large sum of money. Beaumarchais took up the
litigation, and in the court of first instance he secured a
judgment in his favor, but an appeal was taken to the
highest court in Paris, known as the Parliament of Paris.
That Parliament had a sinister name, because it had
been recently constituted. The old Parliament of Paris
was one of twelve similar Parliaments, having both legislative and judicial duties, and it was the only organ
through which the voice of the people could reach the
court. But under Louis XIV. the Parliaments were
rarely called into session except for judicial purposes,
and when Louis XV. became King, he became so annoyed and embarrassed by the occasional complaints that
welled up frorn the submerged people through the Parlement de Paris, that shortly before the Duverney suit
he had abolished the old Parlement de Paris and substituted for it by a Parliament constituted by his own
royal minions. This was called Meaupeau Parlement.
It was the custom of that time for the Parlement to
delegate one judge, called a reporter, to whom the litigants came successively, and had personal interviews,
but in addition to these personal interviews and investigations, such controversies were conducted by a kind
of trial by newspaper or pamphlet in the form of socalled memorials, which passed from litigant to litigant,
and which sometimes attracted public attention, especially when they were well written.
Beaumarchais thus found himself face to face upon
this appeal before a corrupt court, the Meaupeau Parlement, against an antagonist who stood very high in the
French court, and had behind him the prestige of the
•
Duverney millions.
Beaumarchais lived in a period when justice, as I have
already said, was as freely bought and sold as any commodity. The Court of France was a court constituted by
the minions of the King. Beaumarchais was told that it
would be impossible to have a personal interview with the
judge whom the court had delegated as reporter, whose
name was Goezman,unless he would first pay to the judge's
wife 200 louis and give an extra 15 louts for the judge's
secretary. While it may shock us—and I am not trying
to justify Beaumarchais, for under the customs of the
.
times bribery was a common occurrence in France, and
that was the only way to get the interview—he gave to
Madame Goezman the 200 louts and the extra 15 louis
for the secretary. Then he had his interview with Goezman, and two days later Goezman decided the case
against him and held that the receipt given, if not technically a forgery, was nevertheless a spurious document.
which meant social ruin to him.
With that the frail lady of the judge, possibly scenting
danger, returned to him the 200 louis, but failed to return the 15 Ionia, on the ground that she had not received it but the judge's secretary had. Beaumarchais
then went to the judge's secretary and asked him whether he had received the 15 louis. The secretary replied
that he had not. Thereupon the resourceful Beaumarchais sent a demand to the judge and his wife, demanding the immediate return of the 15 Ionia or he would
make trouble; and the judge, knowing that he was now
in danger, felt that the surest way was to openly face
the charge, and he went before his brother judges of the
Meaupeau Parlement, upon whose fidelity to him he felt
that he could count, and charged Beaumarchais not only
with being the forger of the Duverney receipt, but also
the briber of a judge, and Beaumarchais was obliged to
face that added charge.
There was not a lawyer in Paris who would defend

BANKERS' CONVENTION.

him, because the aristocracy and the Parlement de Paris
sisted on the extradition of Charles Theveneau de
were behind the corrupt regime; but Beaumarchais
Morande, the author, the English publisher, or, rather,
placed his reliance in that which was becoming a new
an exiled French publisher of the book containing those
force in French society. He had public opinion against
revelations about Madame Du Barry, the King accordthe whole Meaupeau Parlement, and without stopping to
ingly determined to utilize Beaumarchais. He sent for
count the cost he commenced to launch against the whole
him, and told him that if he were able to accomplish
Meaupeau Parlement a series of charges, just as Zola
this task, that the King would remember it by wipimpeached, in our time, the military tribunals, and, as
ing out this sentence of civic degradation. So Beauwe will see, with the same result. He used philippic after
marchais crossed to England, found this man, and in a
philippic against the French judicial system, and showed
short time did what no one else had been able to do—
its unquestionable corruption, and as a result of his
secured every copy and burned them in a lime kiln near
efforts all Europe became tremendously interested in his
London,and returned to Paris with the joyful news, only
mighty struggle. Each memorial was succeeded by anto find that Louis XV. had died during his absence.
other with more biting wit and sarcasm, in which this
Louis XVI. having ascended the throne, another pubman, with his back to the wall and no advocate to defend
lication was made in Amsterdam, not so much a libel as
him, simply branded his accusers and judge with judicial
a political document of grave import against Marie Aninfamy, and finally, as I have said, all Europe was
toinette, accusing her of not being able to give France
stirred with the excitement caused by the Beaumar- an heir. Louis XVI., remembering the success of Beauchais trial. As a consequence when, after seven months
marchais in the Du Barry episode, sent him to Amsterof these attacks and counter-attacks, it was- announced
dam to suppress this book. Beaumarchais went there,
that the Meaupeau Parlement would render its decision,
made his contract with the publisher, and, as he thought,
all Paris was on tiptoe to learn what the Meaupeau Parobtained every copy. He paid the money and destroyed
lement would do with the problem they had before them. the copies and was returning to France when he learned
It was no longer Beaumarchais who was on trial. It was
that the rascally bookseller had kept one copy and was
the highest court in France.
on his way to Germany, apparently to republish it, a
A great crowd gathered around the court room. Finally
course that the blackmailer nearly always follows. Beauthe judges tried to solve the difficulty by one of those
marchais hastily 'pursued this man and at last caught
judicial compromises which have rarely been effective
up with him near Nuremberg. He threw him from his
in the history of litigation. Upon the whole, their decihorse and rescued from his satchel the last copy. Then,
sion was not unreasonable. They condemned Goezman, fearing that perhaps there might be some other copy in
their colleague, au blame—that is, to be dismissed from
the printing shops of Nuremberg, which were then so
the bench. They condemned him and his wife to civic
justly famous, he determined to go on to Vienna and to
degradation. This carried with it absolute incapacity
see Marie Antoinette's mother, Marie Theresa, and have
to hold any public office, and ordinarily it would have
her take immediate and summary steps to stop the remeant social ruin to Beaumarchais, he being likewise
publication. He reached Vienna and obtained an audicondemned to civic degradation.
ence with the Empress. His passports were in an asWhen Beaumarchais came out of the court room, it besumed name, and Marie Theresa could not believe that he
ing the procedure of the time that he had to go down
was the famous Beaumarchais, the authoi of Le Barbier
on his knees before the court and have this terrible
de Seville, and as a result he was thrown into prison
degradation inflicted upon him, the great crowd cheered
and remained there until a month later, when the word
him with enthusiasm; and as the judges came out they
came from Louis XVI. that this was indeed the famous
were hooted and hunted to their very doors until, as
Beaumarchais; whereupon the Austrian Government rewas subsequently said by, I think Louis XV., when one leased him with apologies, and he returned in disgust to
Paris.
of the judges complained to him that they could not go
to court without molestation, and Louis XV. said, "Well,
On his return a third secret mission was given to him.
There happened to be at that time a curious character
you had better go in dominoes."
by the name of Chevalier d'Eon. For forty-five years he
Thus Beaumarchais became for the time being the most
had been known as a man, but he suddenly assumed the
talked of man of his day, supplanting in popularity men
attire of a woman and played the part so well that all
like Voltaire and Rousseau, who had sowed the seeds of
Europe became interested in the question of his real sex.
public liberty by their prdvious writings. A man so useMany contended that he was a man and some that he
ful as this was not going to long remain in the shadow.
was a woman. Chevalter d'Eon, whether man or woman.
Louis XV. had far too much need of him.
had secured a number of confidential state documents
In the meantime Beaumarchais had reached the conclusion that another effective way to destroy a rotten - which he had obtained when, as a man, he had repreinstitution was through the stage, and for this purpose sented France in the diplomatic service, which documents
the French Government was very anxious to secure.
he wrote a comedy, of which all of us have heard, and to
Accordingly Beaumarchais, the ever resourceful, was
which some of us have listened in the form of an opera.
sent again to England in order to get those papers. It
He wrote Le Barbier de Seville. Having lived for a
was in September, 1775, about five months after Lexingshort time in Spain he bad acquired some knowledge
ton, and among the men Beaumarchais met in his conof the Spanish character, and in the characters of the
comedy, in Rosina, and above all, in the character of Fig- fidential mission was John Wilkes, the radical Lord
Mayor of London, and the center of the rdvolutionary
aro--Figaro being his mask, because Beaumarchais himelement in England.
witty, resourceful, irrepressible, Figaro from
self was the
Beaumarchais met at Wilkes' house men of kindred
the beginning to the end of his life—he presented so
sympathies and the radical spirits of the time. Among
comedy his own struggle for
directly and plainly in his
them was Arthur Lee of Virginia. He had been a law
justice that the censor at first refused to allow it to go on.
student in the Temple, and when Benjamin Franklin had
However, after several years of adverse action by the
to return to America and had given up his position as
censor, it was finally produced in 1775, amid universal
agent for the colonies, he asked Arthur Lee, although
eclat, and it simply pilloried not merely the judiciary of
only a law student, to represent the cause of the colonies
so that he became, although
France, but the court itself,
In his absence. Arthur Lee, as such representative, met
an attache of the court, the rising genius of the French
Beaumarchais, and Beaumarchais and he frequently disdemocracy.
cussed the opportunity which this situation in America
Louis XV. next determined to employ him in the secret
service. There having appeared in London a brochure, presented to France to discomfort England, and Arthur
being a scandalous account Of the then reigning favorite, Lee, as Beaumarchais afterward claimed, told him that
the Countess Du Barry, and Louis XV. having vainly in- if he could obtain any assistance in the matter of powder

BANKING SECTION.
and shot and guns for the American colonies, that the
colonies, if they were ever established as a free nation,
would give to France a monopoly of commerce for a
period of years such as England then enjoyed. Beaumarchais quickly appreciated this unique opportunity for
France to humiliate her ancient foe and gain for herself
substantial material advantages. He suddenly crossed the
Channel and returned to Versailles and in his capacity
as secret diplomatic agent of the King he obtained access to the King's royal cabinet, and there put before the
King substantially this proposition: He admitted that
France could not then openly champion the cause of the
colonies. "But," he said, "let us give aid to them secretly, and if your majesty will give me the necessary
means I will be responsible for their disbursement in obtaining arms and ammunition for the colonies, and it can
take the form of a commercial undertaking, the colonies
to return to me in payment tobacco, indigo and rice."
Thus, as early as September, 1775, and long before
Franklin reached Paris and before our fathers had the
slightest idea that France was going to help un, Beaumarchais had laid his plans and those of France to give
us secret, but substantial, aid. As a result, on June 10,
1776, Beaumarchais received from the French Government a receipt upon which the case of The Lost Million, as it subsequently developed in our diplomatic history, turned. I want to read the receipt, because if my
subject has any legal aspect at all, it will have it in the
wording of the receipt. Let me resume the fiction that
I am addressing a court. May it please your Honors in
this document which I now produce, dated Paris, June
10, 1776, Pierre Augustin Caron de Beaumarchais signs
this receipt: "Received from M. Duvergier, in conformity with the orders of M. de Vergennes, dated the 5th
Instant, which I have handed to him, the sum of one
million, of which I am to render an account to the said
Sieur Comte de Vergennes.
"CON DE BEAUMARCHAIS.
"Good for a Million of livres tournois.
"PARIS, June 10, 1776."
Beaumarchais also obtained an equal loan from Spain,
which was then an ally of France, which was first paid into
the French treasury to conceal its source, and then paid
to Beaumarchais and he gave the same receipt, acknowledging receipt for which he would account to Vergennes,
and with those two million livres he opened a commercial house under the fictitious name of Rodrigue Hortalez & Cie. Before 1777 he had purchased arms, ammunition, clothing, tents and guns for an army of 25,000
men; had not only transported them in his own chartered
vessels and in the face of the English cruisers that
swarmed the seas across the Atlantic, but before the
campaign of 1777 began, he had•sent two hundred cannons and two hundred and fifty thousand rounds of ammunition. DeKalb, Pulaski, Steuben and many others
were employed by Beaumarchais as mercenaries to come
to our country and give benefit of their military experience. Vergennes in substance said to Beaumarchais:
"We will give you secretly these two million francs, but
no one must ever know it. We are not prepared to quarrel with England. If you ever allow the secret to be
discovered, we will disavow you. If it becomes necessary
we will stop the ships from leaving France. We will
repudiate any possible agreement with you. Therefore,
It must take the form of a commercial venture, at your
risk and subject to our repudiating you, if it becomes
necessary."
When Silas Deane, sent over by the colonies as the first
representative in France, reached Paris in August, 1776,
he first paid his respects to Comte de Vergennes, and
asked him whether there was any way in which our
armies literally starving for want of powder and shot,
could obtain a loan from the French arsensals. The great
foreign minister replied: "France cannot help you at
all. We will not in any way countenance any violation

of our neutrality obligation with England." But as Deane
was about to pass out of the count's office, the Comte de
Vergennes said: "There is a Spanish merchant who
trades under the name of Rodrigue Hortalez & Cie. Possibly it might pay you, Mr. Deane, to go to him." Deane
took the hint, and went down to the Hotel de Hollande,
and found Beaumarchais, and asked him if he was the
head of the house. He said, "Yes, I am the head of
Rodrigue Hortalez & Cie, and I shall be most happy
Indeed to send over to the colonies cargo after cargo of
whatever you need, with officers to man the guns, provided that you will ship back to us tobacco, indigo, and
rice in payment." Of course, the colonists had no currency with which to pay. Thus an agreement was made
between Hortalez & Cie, and Silas Deane for the shipment, and on the faith of this agreement Beaumarchais
commenced his shipments which he had bought from the
arsenals of France and awaited the agreed upon payments. Unfortunately, Arthur Lee, who was a veritable
marplot, sent word to the Continental Congress that, although Beaumarchais's remark to Deane was that these
cargoes of ammunition were sent as an ordinary commercial speculation, yet, as a matter of fact, that was
merely a blind, and that these shipments were an absolute gift on the part of France, and that nothing whatever should be shipped back to Beaumarchais against the
shipments made by him. Meanwhile Le Beaumarchais,
in addition to these two millions had enlisted a great deal
of private capital in his commercial house, and it was
absolutely essential, as he had to account not merely to
his creditors, but to the Government for his expenditures, that he should get payment from the Continental
Congress. Two years and six months passed and no
payment came, and not only was he in despair, but was
almost facing financial ruin. To bring matters to an
issue, Beaumarchais sent an agent by the name of De
Franey to Philadelphia to insist that not another cargo
should leave France unless Congress made some payment on account; the Committee of Congress replied that
there was to be no payment, and asserted an understanding that the shipments were a free gift from the King
of France. De Franey speedily undeceived them. Accordingly, Congress instructed Franklin, who by that
time had arrived in Paris, to ask Vergennes whether or
not it was a gift, and the minister told Franklin that
he could tell the Continental Congress that the French
King had nothing whatever to do with it; that the
French King had given nothing toward these shipments
of arms and ammunition, which, in a technical sense, was
true. He had given nothing. He had simply loaned it
to Beaumarchais to be accounted for to Vergennes. The
Continental Congress then paid a small sum on account,
and was about to liquidate the balance, when, in 1783,
we asked France—the open treaty alliance having been
signed, and there being no further need for subterfuge—
for an open loan of 6,000,000 more livres, and the French
Government drew up a contract in which, for purposes
of accuracy, they stipulated just exactly what we had
received•by way of gift, and what we had received by
way of loans, and in this they recited that, before 1778,
his Christian Majesty, the King of France, had given to
the colonies as a free gift three million of livres, and
after that date he had given them six millions, and had
loaned them quite independent of these gifts several millions more. When Congress rend that treaty they remembered that they had received two millions, because
Franklin had in 1778 received two millions from Vergennes independent of Beaumarchais's two millions, in
order that Franklin could support his embassy at Passy.
When the treaty said we had been given three million
pounds, Congress not unnaturally asked: "Where is the
third million?" It is now known beyond dispute that the
missing million was, in fact, the one given to Beaumarchais. Our forefathers suspected this, and not knowing the form of the receipt which Beaumarchais
had

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given to Vergennes, or the nature of this secret transaction, they naturally again believed that Deane's contract to pay for the supplies in tobacco, indigo, and rice
was merely a fraud on England, and that Beaumarchais'
was attempting to collect from them the value of a free
gift. They asked him the question whether or not that
million had not been given directly to him for their benefit. He said, "No, not at all." He had to equivocate
somewhat, because be had accepted this as a secret service fund from the King, and the King's honor was
pledged in a certain sense to England that his Government had not, prior to the open alliance in 1778, given
help to the colonies. Therefore, the mission having been
an exceptionally confidential one, Beaumarchais could
not, without the permission of the French King, reveal
the fact that this million was, in point of fact, a subsidy,
when his royal master and his immediate superior, the
French foreign minister repudiated the suggestion that
the third million was the million given on June 10, 1776,
to Beaumarchais.
He had by this time assisted the American Government" to the extent of over five millions of livres in
arms and ammunition, and of this he received until his
death only a small fraction. Despairing of this debt ever
being paid by our country, he resumed his varied work
as a financier and dramatic author, poet, speculator, diplomat, and secret service spy, because he was one of
those extraordinarily versatile men in which the eighteenth century, as the sixteenth, was so extraordinarily
productive, and which seemed to have passed away in
this industrial age, where everything is specialized.
He determined to write a successor to "The Barber de
Seville," and he would call it "The Marriage of Figaro"
("le Marriage de Figaro"), and just as Shakespeare, to
please Elizabeth, wrote "The Merry Wives of Windsor,"
showing John Falstaff in love, so Beaumarchais determined to show Figaro in love. But his real purpose was
deeper and very radical. His target was this time much
higher than the corrupt judiciary of France; this time
it was the royal court itself, and the whole system of
hereditary privilege. When the play was first submitted
to the censor he said he would not tolerate it for a moment. Great pressure was brought upon Louis XVI. to
have the play produced, and finally the King agreed to
hear it read, and you will find in the Memoirs of Madame
de Campan that she read it to the King, and when they
reached Figaro's monologue in the third act, where he
attacks the very foundation of the ancient regime, the
King sprang up and said: "You might as well tear down
the Bastile as to permit such a play to be produced."
Beaumarchais was a good deal of a Barnum, and he
knew perfectly well, as he had made Figaro say, that the
surest way to make a thing popular is to try and suppress
it. So he simply read it in manuscript in the aristocratic salons, such as that of Madame de Lambelle, that
unfortunate woman, who, you remember, in the first attack on the Tuileries had her head cut off and put upon
a pike and held up before Marie Antoinette as she stood
at the grilled window of her prison. It was read in her
salon and in many other salons in Versailles to the representatives of that chivalry of France which he was laughingly hunting to its death. Beaumarchais, far more than
any of the liberty-loving philosophers that preceded him,
literally laughed away the French monarchy, and I have
the highest authority for that—I have the authority of
Napoleon Bonaparte, because Bonaparte said that the
Memoirs of Beaumarchais in the Goezman trial, his
Barber of Seville, and his Marriage de Figaro were the
French Revolution in action.
He wrote it in 1781, and for three years the King
would not withdraw his royal interdict, and Beaumarchais simply kept it in his desk, giving occasional readings of it in private houses. Finally, the pressure became so great upon the King that, to please Marie Antoinette, he agreed that it should be produced in a small and

insignificant theater of Paris. When that became known
the crowd was so great that it was an historical event
in the French stage. The auditorium was crowded to
suffocation with the most eminent and powerful people
of France to hear a play about which everybody had been
hearing for three or four years. Just as the curtain was
about to go up—it was a hot day, so that they were
almost suffocating—Beaumarchais, with his cane, deliberately broke the windows to let in the air. Just as the
curtain was going up, a royal guard came across the
stage and held up his sword and said:"By order of His
Majesty the King, this play is not to be produced here or
anywhere, now or at any time." Then arose something never before known in France—at least rarely if
ever known before, in such an audience. The titled auditors sprang to their feet crying, "Tyranny, oppression!" •
and thus insulted the messenger of the King. Beaumarchais merely said, "Very well, my play goes back to its
portfolio," and he continued to read it in many private
homes. Finally, Louis XVI., a rather vacillating monarch,
agreed to let it be produced. The great night came when
it was to be produced in Paris. The crowd—almost a
mob—gathered in the dawn of the preceding morning and
waited patiently the whole day for the night to come.
Titled ladies of the most exclusive circles slept in the
actresses' rooms in order to be sure of a seat. They
brought their tables and food to eat into the private boxes.
The great crowd gathered about the iron grating that
stood outside the theater, and finally the mighty crowd
in its impatience surged forward and broke down the
iron fence and sprang toward the doors of the theatre;
three people were suffocated in the melee. Finally, in
the twinkling of an eye, the theatre was filled and "The
Marriage of Figaro" was thus, in 1784, given for the
first time. It ran for three hundred nights, a thing absolutely unprecedented at that time, and Beaumarchais
gave his share of the royalties to a hospital for nursing
mothers, which, of course, added very much to his fame
and popularity. The Comte de Provence had been one of
the most insistent that the play should not be produced,
and shortly after the premier of "The Marriage de Figaro" the Comte made a bitter attack on the triumphant
dramatist. Beaumarchais, who could never repress a
witty saying, even if the object of it was of royal blood,
replied to the attack by saying in substance: "What!
Shall I, who have fought with lions and tigers, now
waste my remarks on a louse?" The Comte de Provence
indignantly went to the King and said, "This infamous
man is calling your majesty a tiger." Louis XVI. was
playing cards, and he took up the three of spades, according to an authenticated memoir, and wrote down on
the spur of the moment, "Send Beaumarchais to St. Lazare." That was not the Bastile, where the political prisoners were imprisoned. It was the most loathsome jail
in Paris, where degenerates were imprisoned. This man
of fifty-two years of age, then the most splendid figure
In the literature of his country, and who had rendered
a thousand services to France and signal service to Louis
XVI., was thus taken from his family and home and consigned to this loathsome jail. The first day Paris woke
up and characteristically laughed. "Figaro in prison."
A great joke. The second day they said, "What? Whose
liberty is safe in France to-day?" The third day it became a rising, sullen murmur. Finally, word reached the
King that there was danger of an uprising in France if
this distinguished poet and dramatist was not released.
Louis XVI., who was at heart one of the kindest of men
—and what irony that this kind-hearted and generally
just king should have expiated with his head the mistakes of his predecessors—made up his mind that he had
done wrong, and he sent an order to release him. Beaumarchais, when the message of the King was delivered,
said: "I will not stir from here until I know the charge
that was made against me," because he was in ignorance
of the cause of his detention. They came back to him

•

BANKING SECTION.

insulted his
and said: "You are charged with having
Beaumarchais sarmajesty by likening him to a lion."
King's most
castically replied, "Is it an insult for the
liken him to a lion?"
loyal subject to
Louis XVI., in
Beaumarchais was then released, and
of Beaumarchais, impartial expiation for his treatment
performance of Figaro,
mediately commanded a special
to attend it; even
and ordered every one of his cabinet
later a performance at the Trianon
permitted a little
which Marie Antoinette
of the Marriage de Figaro, in
part of Rosina and the Comte d'Artois the
played the
part of Count Almaviva, and he invited Beaumarchais
of
to be the special guest of the court to see the Queen
France and daughter of Maria Theresa tread the boards
of the theatre and play the part of the vivacious Spanish flirt. Could royal self-abasement go further? Napoleon boasted that he had given Talma an audience of
kings and emperors, but Beaumarchais could claim that
he staged his play with royal actors and actresses and
was himself the audience.
The rest of Beaumarchais's stormy life can be very
quickly sketched. Having spent his life in controversy,
and having a sharp tongue, he was almost continually
in a fight. He never lost his good humor and never attacked a man unless he was attacked, and he was always generous to a fallen foe. His papers after his
death contained promissory notes aggregating 900,000
francs, of actors, authors, politicians, nobles and commoners to whom he had loaned money from time to time,
many of then men who had been his personal enemies.
He was most generous in his disposition, whatever his
other personal faults.
In the meantime, the revolution broke with volcanic
violence. Members of the convention, headed by Danton, Marat and Robespierre, knew that there were 75,000
muskets in Holland and wanted to get them, and they
sent Beaumarchais to get them. He agreed to do it.
They gave him 500,000 francs in assignats, but made him
put up, as collateral for the success of his attempt, 750,000 francs of money that passed current. Beaumarchais
went to Holland, and had to work very secretly, because
England was attempting to find out where those arms
were and to confiscate them if they were the property
of the French nation. While in Holland in 1798 the Committee of Public Safety made up its mind that Beaumarchais was a secret royalist, proscribed him and confiscated his beautiful home near the site of the Bastile.
What a situation! An exile, minus his 750,000 francs,
his wife and daughter thrown into prison, and 'daily
awaiting, probably, that said procession to the Place de
la Concorde, where heads were falling by hundreds into
the basket, and he in Holland, unable to help them, knowing if he came to Paris he would almost certainly lose
his head. He, however, returned to Paris, attended a
meeting of the Committee of Public Safety, and defended himself in a spirited speech, in which he ridiculed the personal appearance of Marat, and asked who
Marat was to assail him, citizen Beaumarchais, who had
done so much for French liberty. The Committee of
Safety, war having at that time broken out between
France and several European countries, felt that France
needed Beaumarchais's services more than his head, and
sent him back to Holland to recover the arms. He returned to Holland and had arranged by devious ways to
get those guns for the French Government, when suddenly the Committee of Safety again proscribed him,confiscated his fortune and he remained an exile until Napoleon planted his guns upon the steps of the St. Roch,
ended mob rule in France and brought law and order
again into this unhappy country.
It only remains for me to tell you what became of
"The Lost Million." I have sketched briefly and very
inadequately Beaumarchais's career. Certainly Dumas
never wrote anything more romantic than the sober facts

•

101

that I have had the pleasure of relating to you in the
most cursory way.
Beaumarchais had assured the Continental Congress
that his demand for five million francs—call it one million dollars—spent for ammunition and guns was not a
gift, but was a sale, and that it was ruining him not to
receive what was due him. Although Congress had previously assured him that it would pay, it nevertheless,
after its usual custom, failed to pay, to his great embarrassment. While an exile at Hamburg, and practically
ruined, he wrote a pathetic letter to our Congress, which
I want to read to you, because it gives an idea of his
style, as well as points the pathos of this story:
"A mericans, I served you with untiring zeal. I have thus
far received no return for this but vexations and disappointment, and I die your creditor. On leaving this world, I have
to ask you to give what you owe me to my daughter as a
dowry. When I am gone, she will, perhaps, have nothing, on
account of other wrongs against which I can no longer contend. Through your delay in discharging my claims, Providence may have intended to provide her with a resource against
other destitutions. Adopt her after my death as a worthy
child of the country. Her mother and my widow, equally unfortunate, will conduct her to you. Regard her as the daughter of a citizen. • • • Americans • • • be charitable
to your friend, to one whose accumulated services have been
recompensed in no other way
Date obolum Belesario."

He died without the slightest recognition of his claim.
In 1778, after Louis XVI. had given his assurance that
the million of June 10, 1776, the receipt for which I read
to you, had not been given by the King to Beaumarchais,
which was a diplomatic falsehood, the American Congress persisted in thinking that it was a gift. In 1794,
when there came a lull in the political storm, Congress
instructed our Minister in Paris to request information
as to when the missing million had been given to our
country, credit for which the French Government had
claimed. The French Foreign Minister then advised our
representative that the million in question had been
given on June 10, 1776, to Beaumarchais. This naturally
confirmed the suspicion of Congress that Beaumarchais
was attempting to defraud this country. Congress
claimed that this million was given to Beaumarchais for
our benefit, and therefore deducted it from the balance
of his account of 3,600,000 livres. You would have
thought that our country, having had such signal benefits from this man, who, mark you, had hazarded every
one of the forty ships he employed, and had run the
gauntlet of the guns of the English navy, would have
"
paid it without "looking a gift horse in the mouth ;
but instead Congress refused either to adjust the question of the lost million, or to pay him the remainder of
his claim. Taking the disputed items as a pretext, it
refused to make any adjustment. In 1785 it did instruct
our Consul General in Paris, Mr. Barclay, to make another examination of the account against which Beaumarchais for nearly a year protested, and as a result of
such examination, while the claim was somewhat reduced by our consular representative, it still left, Independent' of the missing million, a large balance in Beaumarchais's favor. Although he was then in sore need of
the money, Congress turned a deaf ear to all his entreaties. In 1787 he addressed the following letter to
the President of Congress:
"What do you suppose is the general opinion here of the
vicious circle in which you have involved me? We will not
reimburse M. de Beaumarchais until his accounts are adjusted
by us, and we will not adjust his accounts so as not to pay
them. With a nation that has become a powerful sovereign,
gratitude may be a simple virtue unworthy of its policy; but
no government can be relieved from doing justice and of discharging its debts. I venture to hope, sir, that, impressed by
the importance of this matter and the soundness of my reasoning, you will oblige me with an official reply, stating what
decision the honorable Congress will come to, either to promptly
adjust my accounts and settle them, like any equitable sovereign, or submit the points in dispute to arbiters in Europe
with regard to insurance and commissions as M. Barclay had
the honor of proposing to you in 1785, or, finally, to let me
know without further shift that American sovereigns, unmind-

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ful of past services, deny me justice. I shall then adopt such
measures as seem best for my despised interests And my
wounded honor, without lacking in the profound respect with
which I am, sir, the very humble servant of the general Congress and yourself, Monsieur le President.
"Caron de Beaumarchais."
In this letter, which I have only quoted in part, he
agreed to submit the disputed question to any arbitrator
with the single exception of his inveterate enemy, Arthur
Lee, and our Congress actually had the indecency in
reply to appoint Arthur Lee to make a further investigation. That envious, suspicious and vindictive marplot
revised the figures with such obvious want of fairness
that he actually brought Beaumarchais into debt to the
United States to the amount of 1,800,000 francs. This
report was such a shocking travesty on fair play that
Alexander Hamilton, then being Secretary of the Treasury, ordered another investigation, which resulted in
finding that the United States did owe to Beaumarchais
the sum of 2,800,000 francs, provided that he was entitled
to the lost million, and 1,800,000 francs if the lost million
properly belonged to our Government. Still our country
refused to pay, and Beaumarchais died in 1799 without
having received even so much of his claim as our country
did not dispute. In 1816, in a spasm of virtue, our Government said, through Mr. Gallatin, to the French Foreign Minister, that was the most decent thing we did in
the whole matter: "If you will give us your personal assurance that from your own investigation of this account
that the disputed million was not given to Beaumarchais
as a gift to us, and was not used by him in the purchase
of military suppliei, for which his estate is now charging
us, the United States Government will make no further
contest, but will accept the million as a debt, and settle
the rest of the account."
.
Thereupon the French Foreign Minister replied that,
while it was true that the million in question had been
given to Beaumarchais, yet it was not given for arms
and ammunition, but that it was a "mystere de cabinet,"
and given to Beaumarchais for secret political purposes,
and that, in any event, the French Governthent was on
solid ground, for which his estate was accountable to
the French Government. Our Government refused to accept that explanation as satisfactory, and insisted with
a great deal of force in a strong diplomatic communication to Mr. Gallatin that, as this million dollars had been
paid to Beaumarchais for our use, and the French had
included it in the three millions as gifts, it must be so
treated. That the bailee had a duty not only to the
bailor, but to the beneficiary, for whom the bailee had
given the sum of money. On the other hand, the French
Government said that Beaumarchais's accounts in the
seven years with the French Government, showed that
he had received 21,000,000 livres, and that thereafter
there had been a cancellation of accounts between the
French Government and Beaumarchais, and they suggested, rather than stated, that Beaumarchais, in settling the account with the French Government, had been
charged with this lost million.
The dispute was not settled until Andrew Jackson—
"Good Old Hickory "—became president of the United
States, and be cut the gordian knot in a way which
almost brought on war between France and the United
States. You will remember that after Napoleon became
First Consul, and the French fleets had swept our commerce from the seas, we preferred against the French
Government the so-called French spoliation claims for
$5,000,000 or 25,000,000 francs. Andrew Jackson determined to force a settlement of these claims, and instructed our minister. Mr. Livingstone, in Paris, to negotiate a treaty to that effect, and without any diplomatic delay. Livingstone finally secured a treaty, under

which it was agreed that the French would pay five million dollars for the relief of our citizens, provided that
France could deduct, for the heirs of Rochambeau and
the estate of Beaumarchais, a sum, in the latter case,
800,000 francs. Beaumarchais's claim was 3,800,000
francs, and as found by Alexander Hamilton it was
2,800,000 francs. Assuming that he was all wrong as
to "The Lost Million," we yet owed him 1,800,000 francs
beyond dispute, and yet all that the heirs of Beaumarchais ever received under this settlement, and they did
not get that until 18.15, was 800,000 francs, and they only
received that through the settlement of the French
Spoliation Claims. The treaty was made in 1831, and
the French Parliament, possibly taking a leaf from our
note book, would not appropriate any money to carry
out its provisions.
Finally, in 1834, Andrew Jackson's patience was exhausted and wrath was great, and he sent a message to
Congress in which he intimated rather brusquely that
France had no intention of respecting their obligations,
and he advocated a seizure of the property of French
subjects in our own country, until we had received the
five millions due us. You can imagine the effect of such
an undiplomatic threat upon a great and proud nation.
There was an uproar in France. The French Government handed our Minister is passports, recalled their
own Ambassador, demanded an apology, and served
notice upon Andrew Jackson that, unless our country
apologized for his offensive language, they would neither
pay the Spoliation Claims or resume friendly intercourse
with us. Andrew Jackson was not the man to apologize
.
on demand. Like Falstaff, he would never give reasons
"On compulsion." Thereupon, the French Government
which was very much in earnest, determined to send a
fleet to our harbors to make a hostile demonstration, and
"Old Hickory" in turn asked Congress to appropriate
money for the national defense. In the meantime, our
dismissed Minister was hurrying back to Washington,
and Jackson had sent word to him that as soon as he
arrived to come at once to the White House. It is highly
amusing, and I hope that no one of French descent will
object to my telling the story. As soon as Livingstone
reached Washington he was put in a carriage and hurried to the White House, and there was Jackson with.
his cabinet, most of whom thought he had gone too far,
waiting for Livingstone's report. Livingstone's story
was to the effect that France was very much in earnest
and would make war unless our Government apologized.
Jackson replied: "That's like them French; they never
pay unless they have to."
Let it be gratefully remembered that It was then
England that stepped in and tendered her good offices to
both France and the United States, and as a result Jackson disclaimed an imtentional affront. The French Government withdrew its demand for an apology, and the
French Parliament promptly passed the appropriation to
pay the French Spoliation Claims. France in turn paid
to the daughter, as the sole heir of Beaumarchais, the
paltry sum of 800,000 francs in settlement of this ancient
claim.
Let us hope that the time will come when our country
will not only honor De Kalb, Lafayette, Rochambeau,and
Steuben and Pulaski, hut will also honor that great Foreign Minister of France who, next to Franklin and Washington, did more for our independence than any human
being, the Comte de Vergennes; that we gratefully remember Louis XVI., who in helping our cause out of his
own private purse, lost both crown and head, and last,
but not least, that we will also gratefully remember that
Figaro in life—Pierre Augustin Caron de Beaumarchais.
Gentlemen, that is the story of The Lost Million.
I thank you.

BANKING SECTION.

103

Banking and the Larger Citizenship.
BY EDWARD K. GRAHAM, President of the University of North Carolina.
that its contributions to the world's welfare give it a
In speaking on the general subject, "Business and the
high and noble place in God's scheme of civilization.
Larger Citizenship," in a programme made up of delibHe looks about him at the successful men in business,
erately specified topics, I would not be accused of purand, without analyzing their great qualities, they seem,
poseless generalities, or idealism that cannot be made
on the whole, to measure up to the men in other callings.
to work. The subject may not seem as distinctly practical as good roads, good soil, good schools, and yet, in
And more than all of this, whether he achieves the
thinking as specifically as I can about roads, schools,
height to which his business calls him or not, the serious
and even churches that are good, I find that no amount
business man knows that in his business there is a height
of thinking and talking by public road experts and soil
that he can spend the best that he has in him in attainexperts and teachers will produce the results we all deing. Often blindly, but with flashes of deeper vision, he
sire, unless along with the specialist knowledge and servfeels the thrill of the creator; and he knows that he, too,
ice we bring in our line, you bring the knowledge and
is a co-worker with all good men in the building of a
service of yours. I mean that we cannot have good
Christian commonwealth. He feels that business men
public roads and good public schools unless, in addition
who wreck a railway system through financial maniputo good engineering and good teaching, we have good
lation are as surely traitors to the whole public as Tweed
public banking and finance. It is to make a simple point
was or Benedict Arnold; and he feels also that the men
In regard to what good public finance is, whether it is
who built up the Pennsylvania System, the carrier of the
practical to have it, and what we can do to further it,
civilization of the people, are quite as worthy workers
that I shall briefly address myself. No question can be
In the kingdom of righteousness as the artist who deof more practical and vital importance than this ques- .signed the plans for its beautiful terminus.
tion of the relation of business and banking to the public
Business is business; but it is also life—an essential
welfare, and particularly to the welfare of the farming
part of the life of the individual man and an essential
public.
part of the life of the nation. What we are coming to
The view is current that banking men and business
see is that good business, like all other good human
men have no relation except antagonism to the higher
activities, has two characteristic marks: it must be a
and nobler activities of men. I was reading a day or two
good job in itself, and it must be done in accord with
ago a sermon by a minister of national reputation, and
the standards of the nation of which it is a part. The
a man of great public spirit, in which this ground was
first is a question of individual freedom and efficiency;
eloquently taken. He reviewed the "awful record of
the second is a question of responsibility and relationship. Reconciling their contradictions in a practical
industrial accidents," the ruthless fraud, chicanery, corruption of politics and government by business, the outstandard of Christian democracy is the task of the civilization that we are building. In science, in art, in govright robbery honored in the business world, the deernment our practice conforms to our theory with sufstruction of our natural resources on which the nation
ficient clearness to be recognized by all men. No
of the future must live; and he vehemently declared that
scientist, no artist, no statesman could fail to hold his
the only law of business is brute force and the survival
genius and his profession, in large part, as public propof the craftiest. His conclusion from what he had oberty. Legitimate government, by whomever adminserved in his work is that business is bad in essence and
istered, is government administered in the interest of the
its standards wholly bad.
whole body politic—and this standard is coming to be,
And this view by constant repetition in pulpit and
forum and (up to a few years ago) in the popular magaand will be, the practical standard of good business.
zines convinced even men whose occupation is business
It is a difficult doctrine, but it is the very thing that
that they are a necessary evil in a Christian republic. A
Is happening before our eyes—this saturation of the
good man, they were forced to feel, may be a good man
standards of business and the uses and processes of busiafter hours, or on legal holidays, or after he has retired
ness with the national standard. Business responsibility,
from business. But business is—business. No other
business self-restraint and co-operation, to the man who
word expresses its isolation, its lawlessness, its unrereally sees, are facts far more significant in present
latedness.
America than ruthless selfishness, greed and the survival
But the typical business man and bank man (who sits
of the craftiest; and the steady progress we are making,
at the center of this alleged game of wealth versus comIn a truly democratic interpretation of business, is one
monwealth) cannot quite believe that this is the whole
of the most significant facts in present world history.
truth, or even a part of the real truth. Nobody sees so
To the question how we achieved the progress we have
clearly as he that selfishness and greed, strong everymade, and how we are to achieve the even more diffiwhere that men live and work, are fiercest in business; cult tasks ahead, there is no specific answer. It will not
but he knows that they are not business. He acknowlbe through legislative panaceas swallowed by Congress,
edges the power of self-interest and the fierce law of the
and the people suddenly made whole. The lash of legissurvival of the crafty; but he knows that it is not the
lation cures no business ills, though it may serve, as it
only law, or the great law, and that we are rapidly disdoes elsewhere, to compel attention to the higher law
covering the higher law, even though its standards and
of self-restraint. Enlightened self-restraint has played,
demands are not yet quite understood. He looks at the
and will continue to play, a large part. But it will be
work of his hands and brains—at his factory, his store, through the same slow and difficult process of self-educahis trust company—and it seems to have a place in • tion by which we learned and are learning self-governGod's scheme of things. And he looks over this vast
ment—through realizing more clearly what we are working for. It is not through restricting the doctrine that
country with its giant concerns and institutions of industry and trade—the incarnate expression of the new
business is business, but enlarging it to the view that
business is life. We are learning that one may co-operate
anti-feudal power of Commerce—and it seems, in its
work for universal peace, its extension of the suffrage, not only with a single partner, and a group of partners,
religious toleration and diffusion of material well being, and a group of thousands of dividend sharers, but with

104

BANKERS' CONVENTION.

ten thousand workmen and their families, and that we
may extend that vision of co-partnership to the whole
community and its wealth, health and happiness. This
insight comes not from conversion to altruistic philanthropy, nor from an outburst of emotional patriotism,
but through a fuller knowledge of the facts of public
welfare, and so to a truer conception of our business
concerns and our banking institutions as arteries through
which the life of the community flows, and our bank men
as public men and ministers of the public welfare as
truly statesmen, teachers or preachers; When we know
fully and exactly the economic facts about the public
welfare, the projecting power of our sympathy will be
vastly increased.
Perhaps I can make this clearer by the case of the
Banker Who Discovered an Open Road. He was a
normal sort of person, successful and busy, and he lived
after the fashion of his class. He took pride in his town,
and he knew a few things about it—its rapid growth in
population, its fine main streets, its tax rate, its leading
industries. The air of prosperity that it wore was a
daily delight to him. What he cared most about, of
course, was his bank. He had built it up and put his
life into it. It had grown as the town had grown, and
now it lifted its head proudly to a view of all the wide
country round about that it served and was served by.
He knew every detail of its business, and he loved all
of it, down to the fixtures and the bronze plate in the
entry. He had no theories except that he agreed with
Vice-President Marshall in the doctrine of the "clean
doorstep"; i.e., he believed that it was his duty to keep
his own doorstep clean, and that that was enough. He
did his own job well, and the question of whether in
doing it well he helped or hindered others in doing their
job well he considered their concern and not his. As to
what doing a job well was he would have referred you
to the bank statement. He was not concerned with public questions except as they openly touched his interest
or the bank's Interest; and he took some pride in the
fact that he was not an "uplifter." The good roads
question to him was a matter of the asphalt avenue that
led from his clean bank steps to the porte coch,ere of
his home. It went on by, of course, as roads do; but it
was not in his knowledge as to how good or how bad
it was after it was lost in the blue haze of the hill beyond.
. Then in the course of business a simple thing happened. He acquired a farm nine miles out on the road.
He became interested in it and in making a good job of
It, and interested in the tenant and his family, through
whom he was to make a good job of it. He found that
though you needed good roads, good schools, good
churches in your farming community in order to get a
good job done there and keep good people there, that it
wasn't sheer stupidity and desire for ignorance and unwholesome, unattractive living that kept the people from
getting them. He studied the census returns, and found
that although the people produced a great deal of farm
wealth, that very little of it was economic surplus out
of which communities can vote taxes for roads and
schools; that they were conducting a business of marketing without a knowledge of marketing that required cooperation without a medium of co-operating; that they
were attempting on a faulty, unorganized credit system
to make a profit on a business that between the bank
and the store required twelve to twenty per cent. interbank
est. Gradually it came to him that the job at the
preand the job at the farm were parts of the same job
both were vital organs in the same
cisely, and that
was
healthful or unhealthful community life. The bank
but in its being at the
no longer an isolated enterprise;
heart of the community's material affairs vitally affected
every public activity.
of
What he discovered through learning some facts
public welfare was not that he had before been a bad

man with a bad business, but that his job was a vastly
bigger and more inspiring job than he had understood.
He knew what it was to be a bank man; he discovered
what it was to be a Man in the Bank. He knew that
the public road was a satisfactory way downtown and
back; he found that the same road was an open door
to the end of the world. He found that what the standards of his country asked of him was not that he sacrifice himself and his business in sentimental service, but
that he liberate himself and it through exercising freely
the privileges of the larger citizenship.
Because we believe that knowing about the facts of
our whole community life is the first step in dealing
fairly and generously with them, we have instituted in
North Carolina a State-wide campaign for arousing nonpartisan interest in the state of the public welfare. The
first step in this campaign is a Community Service Week,
decreed a few days ago by proclamation of the Governor
to be celebrated all over the State by all classes of citizens the first three days in December. The first of these
days is a "Public Roads Grounds and Building Day" on
which the men and women and young people of each
town, township or school district will meet according to
plan and work together in one of three forms of actual
physical service to the community: (1) in making more
worthy and creditable streets and roads; (2) in improving the exterior and interior of public building; (3) in
beautifying school grounds, cemeteries, parks and planting trees, etc., along the streets, roadsides and private
grounds. The second day is "School and Neighborhood
the
Improvement Day," with the neighborhood served by
be
school as the unit; and on this day meetings will
discuss community condiheld in the school houses to
tions, ways for improving social life, economic and health
conditions, and local committees named to prosecute
plans for carrying out the ideas. The third day is
"County Progress Day," on which a great public meeting shall be held at each county seat to discuss the needs
and possibilities of the county in the light of comparisons made with the conditions in the county ten years
before, and with conditions in other counties. Careful
and detailed programs for each of these days, with
abundant and specific information, have been prepared
in the form of a civic handbook by a central committee;
a plan of organization for each county outlined in the
fashion of organizing a political campaign; a paid secretary employed to conduct the campaign from the State
capitol.
At the State University we are putting this idea of
local applied economics and civics directly into the curriculum and student activities. Our students are largely
North Carolineans. Groups of them come from every
county. These are organized into county clubs, and these
clubs federated into a State club, in which the studies
that the county clubs make of local conditions are compared with each other and set over against the conditions in other States. These studies are based on a syllabus prepared by Professor E. C. Branson, who gives his
whole time to this work, summing up county conditions
from investigations of population, wealth, domestic animals, co-operative enterprises, public highways, law and
order, recreations, rural credit, churches.
We believe that in a democratic commonwealth such
as ours, no matter what our method of approach—
whether through banking, education, manufacturing,
farming—a primary condition in promoting the sort of
progress that we are all at heart agreed on wanting is
a more thorough knowledge of what the facts are. With
this will come freer and less prejudiced discussion, a
deeper and truer understanding of the principles underlying the facts, and a practice that will accord to a more
generous and human interpretation of them. Our great
lesson, bitterly hard to learn, but holding the infinite
secret of individual and national freedom that we seek
and that we will learn, is that these streets, and stores,

BANKING SECTION.
and fields, and banks, and factories, and school houses,
and churches, and all the rest, are but "folds across the
face of God," and that the "Thy Will," for which we
daily pray, will be done here and now, or nowhere; and

105

that banking, agriculture, education, freedom, and life
itself are but instruments for finding the common God in the common good and making His will
prevail.

Fundamental Problems in Road Improvement.
By L. W. PAGE, Director, U. S. Office of Public Roads.
The problems involved in road improvement and maintenance are many and varied. Their solution calls for
the best thought and effort of specialists in many lines
of human endeavor, for these problems concern not
merely the actual building and maintenance of the roads,
but also the enactment of comprehensive and efficient
legislation, the raising and the honest and capable handling of huge sums of money, the formation and management of great working organizations, while in many
States collateral questions of importance, such as the
utilization of convict labor, are involved. Modern traffic
conditions have intensified to a remarkable degree the
difficulties attendant upon the adaptation of road surfaces to traffic requirements. Far-reaching questions as
to the distribution of cost burdens, so that they may rest
equitably upon the shoulders of all who benefit by the
Improvement, occasion no little controversy among those
who are striving for the development of our primary
transportation facilities. Yo'u will thus see, gentlemen,
that there are so many angles from which to approach
the subject that I must necessarily confine my remarks
to only one or two aspects of this great work.
First, I wish to point out the magnitude of the problem by citing a few statistics, which may serve as metes
and bounds, so to speak. Our latest information indicates a total length of public road outside of incorporated cities and towns aggregating a little over two and
a quarter million miles, and for the purpose of comparison I may say that this is about fifteen times
the road mileage of England. It is a favorite argument of those who oppose adequate road improvement to say that the improvement of this
vast system would mean an outlay at, say, $5,000 per
mile, of over $11,000,000,000, and that even though 10
per cent, of the mileage, or 229,000 miles, are already
improved by hard surfacing, this would still leave a possible outlay of something like $10,000,000,000. Without
meaning to detract from the magnitude of the problem
before us, I cannot overlook this opportunity to point
out the absurdity of this fanciful contention. Careful
investigation has shown that in any average rural district from 15 to 25 per cent, of the roads carry from 60
to 85 per cent, of the traffic, or, to be more exact, let us
say 20 per cent, of the roads carry 80 per cent. of the
traffic. The logical conclusion is, therefore, that for all
practical purposes the hard surfacing of from 20 to 25
per cent, of our total road mileage is all that is necessary. After allowing credit for the mileage already surfaced, it is apparent that the problem before the American people is to improve and properly surface something
like one-quarter million miles of road. I might also add
that traffic and climatic conditions and the distribution
of road materials make possible and desirable the use
of many kinds of materials and the construction of many
types of road surface, ranging all the way from the
sand-clay mixtures of the southeastern seaboard, frequently built at a cost as low as $1,000 per mile, to types
of a more permanent character costing in exceptional
cases as high as $25,000 per mile, built in various centers
of heavy traffic. So that it is utter folly for any one to
fix upon a given type or a given cost and apply it arbi-

trarily to the whole road question throughout the United
States. You can thus see that, although the task is a
gigantic one, there are modifying conditions which make
it practicable of achievement if the proverbial energy,
good common sense and persistence of the American people are applied.
Progress is being made and vast sums of money are
expended year by year in the endeavor to lift America
out of the mud. Last year a total of something over
two hundred and five million dollars was expended in
money and labor on the roads of the United States, and
you may form some idea of the progress by comparing
this with the $79,000,000 expenditure for 1904. This
shows an increase in annual outlay of $126,000,000, or
more than 170 per cent. Our chief troubles are not lack
of zeal or excess of penuriousness, but rather a defective
system, a widespread ignorance of proper methods, a
good-natured disregard of the dictates of economy and a
very general practise of playing politics with road funds.
To criticise is easy, and unfortunately the critic who
has no remedy for the faults he finds always has a sympathetic audience. I must say that I have no patience
with the pessimist who goes about continually pointing
out the things that are wrong and proving that they are
wrong, and never suggesting a way to make them right.
In this matter of road management, however, it is fortunately as easy to point out the right way as it is to
criticise the wrong way. The first essential—and it
must be apparent to every fair-minded man—is that the
administration of the public roads must be taken out of
politics. The roads are absolute economic necessities
and cannot for a moment be considered as legitimate
spoils of the politician. Granting that the roads should
be taken out of politics, how is this to be done? The
answer is comparatively simple: place all management
of the public roads of State importance under the control of a non-partisan, non-paid commission holding office
partly ex-officio and partly through appointment, and
have these men choose a competent engineer as executive
head, who will hold office so long as he renders adequate
service and who is responsible to no political party and,
in fact, is rigidly excluded from participation in political affairs; have his subordinates appointed through an
efficient merit competitive test and require by law that
all officials having to deal with public roads shall possess the essential technical and practical qualifications.
In the handling of county roads, follow the same general practise. The county engineers or superintendents
should have the widest possible authority, and should be
provided with a small force of competent men. Such a
system in lieu of the present many-headed, loosely-constructed, politically-dominated county organizations
would work wonders, and would save at least fifty million dollars a year on the basis of our present outlay.
One of the first results to come from competent organization would be the classification of our highways in
accordance with traffic requirements. Incidentally, this
classification of roads will go far towards neutralizing
the effects of petty politics, for under the classification
the roads which are most important to the people would
first be improved and would receive the most improve-

106

BANKERS' CONVENTION.

common to issue a forty-year bond to build a road, the
ment. Under the system now prevailing in most of our
surface of which will wear out in ten years. If we grant
rural sections the convenience of the few influential citithat the location, grading and drainage structures are
zens, the insistence of real estate operators, the parcelpermanent and that they represent as high as 50 per
ing out according to political subdivisions rather than
cent, of the total outlay, it would mean that half of the
traffic needs, dictate the location of improvements. In
original investment must be renewed at ten-year interclassifying roads according to their importance, it will
vals. The impression is entirely too general that a hardgenerally be found that a small mileage, ranging, say,
surfaced road is permanent and requires no maintenance.
from 5 to 10 per cent, of the total, comprises main trunk
Disastrous results of this attitude are seen in many counline roads used heavily by traffic originating both in and
ties where the costly roads have disintegrated, while the
out of the county and forming links of a possible system of State, and even national, importance; from 10 debt remains as a burden upon posterity. I should say
that three basic conditions should be observed in all
to 20 per cent, will consist of secondary roads, imporbond issues for road improvement. First, that the life
tant for market traffic; while the remainder will comof the bond should never exceed more than double the
prise unimportant feeders and neighborhood roads.
life of the perishable part of the Improvement; second,
If the fundamental question of what roads to improve
that proper provision should be made for the payment of
and the order of their improvement has been determined
the bonds and of the interest as due; and, third, that
through classification, the next fundamental question is
that of financing the proposed improvement. This quesadequate maintenance from the date of completion of the
road should be compulsory and revenues provided action is two-fold and involves a determination not only
of how the money should be raised and how expended, cordingly.
but also how large an outlay is justified in a given case.
While I am on this question of financing road improveIn logical sequence this latter consideration should first
ment, I wish to say a word about why State aid and
receive attention. In deciding how much money may
State supervision have made such rapid progress
wisely be expended on a given road we must measure
throughout the past fifteen or twenty years. It must be
apparent that the public road, no matter how far rethe probable returns in reducing hauling costs and in
mote from centers of population, is no longer a mere
social service. An investment is therefore wise and justified which will yield the maximum net annual return, local utility. Travel from the cities penetrates to the
after deducting interest, depreciation and maintenance
remotest parts of the country; the supplies from the
costs. Both under-investment and over-investment are
country find their way to the crowded centers of populaburdens upon society.
tion, and any serious interruption to the movement of
It may interest you to know how the traffic importance
farm products over the country roads is reflected in the
of a road may be ascertained. The first step is to deterIncreased cost of living in the great cities. There are
mine the traffic area much as you would determine the
many sound thinkers who 'believe that living would be
cheaper, prosperity more widely diffused and economic
drainage area of a water course. This area is expressed
In acres and the percentage of farm land under cultivaand social conditions generally made better if the condition•of rural life were improved through better roads
tion ascertained. It is then a comparatively simple matand schools and increased comfort on the farm. Under
ter to figure the approximate yield in tons and the percentage of the products which is hauled from the farm. the old system of local control and taxation the cities
have contributed in no wise to the up-keep of country
Two-thirds of the longest haul from a given market point
roads. State taxation, on the other hand, reaches the
Is taken as the average haul for the traffic area and the
cities and large corporations, and consequently the buildtotal tonnage multiplied by the average length of haul
ing of a State system of roads so distributes the burdens
given the total ton miles. The average cost of labor and
of cost that the farmer is relieved to a considerable exper ton
teams affords an indication of the cost of hauling
tent and is enabled to enjoy the benefits of a good road
mile, and it only remains to estimate approximately the
at an outlay easily within his means. In the State of
to be brought about by
saving in this cost per ton mile
New York I believe that over 70 per cent, of the total
the proposed improvement to determine whether or not
expenditure for the bond-built roads is paid by the City
improvement is justified. A striking
the outlay for the
of New York. State control means skilled Supervision,
example of justifiable improvement is afforded by
systematic improvement and correlation of local effort.
Va., where $100,000 has been spent
Spotsylvania County,
It is manifest that a town system of control is inadesince the beginning of 1910 in the construction of a sysquate, as it does not allow the employment of skilled
for two districts in that county. On one
tem of roads
supervision, the use of adequate machinery and the orroad between Spotsylvania Court House and Fredericksefficient working force.
ganization of an .
12 miles, has been expended $28,000.
burg, a distance of
Thus far I have not explained to you in any respect
Careful study by the Office of Public Roads shows that
which roads are actually constructed and
the annual cost of hauling has been reduced over $14,000. the methods by
maintained. It is neither desirable nor at all probable
other words, this road now yields an annual income
In
that any of you gentlemen will change from your presequal to•50 per cent. of the original investment. The
ent occupation to that of building roads, and even if you
of this road was composed of a mixture of
surfacing
did contemplate such a change, what I may say to you
sand, clay and gravel at a cost of about $2.300 a mile.
in a few moments would have little effect upon your
of a sand-clay-gravel surface, an expensive
If instead
qualifications as highway engineers. It is a curious fact
type of construction costing, say, $15000 a mile, had
that most laymen consider a talk highly practical if it
outlay would have been far in excess
been employed, the
enters into the actual methods of construction and mainof the traffic requirements, and the annual return would
tenance, and highly impractical if it deals with those
not, during the life of the road, have reached such prolarger questions which are the only questions connected
make the investment a paying one.
portions as to
with the subject of road improvement requiring the acAssuming that the amount of the outlay has been
tual attention of the laymen. Road building is an art
concerns the
agreed upon, the next phase of the question
based upon a science, and it requires specially qualified
method of obtaining necessary revenues and safeguardmen to practise it. That which concerns the taxpayers
ing and directing their expenditure. When large amounts
Is to provide suitable legislation, an adequate system,
construction are required direct taxes frequently
for new
funds, competent men, and let the rest of the work
prove inadequate and resort is had to bond issues. Right ample
alone.
your attention to what appears to
here I wish to call
It might be worth while, however, to call your attenme to be a dangerous trend in the financing of road imtion to a few of the common errors made by unskilled
issuance of long-term bonds
provement, and that is the
road overseers, so that you may recognize their handlfor short-term improvements. In other words, it is quite

BANKING SECTION.
work in your travels through the country districts. Many
of you have noticed a freshly repaired earth road where
weeds and grass from the side ditches have been used to
fill ruts and holes. Now just a little common sense
would enable a person to realize that vegetable matter
decays and becomes soft, and that wherever vegetable
matter occurs in a road there is sure to be a soft place
where the water will concentrate and intensify holes and
ruts. You have often seen holes in an earth road filled
with stones. It is an axiom of road builders that you
cannot float a raft of stone on a sea of mud. The placing of the rocks in the hole does not remove the water,
which, consequently, percolates a little further into the
earth surrounding the stones, so that in place of one hole
in the road you have two holes and a rock ridge. Holes
and ruts in a road should be filled with the same material of which the road is composed. It was said by some
one familiar with the operations of the road overseer
that if Lee had turned out the road forces to work the
Virginia roads in the rear of his army, Grant would
never have reached Richmond. This haphazard tinker-

107

ing with our earth roads is a source of continual waste
of money and is a constant object lesson to prove the
necessity of competent supervision. It may interest you
to know that early in this year an arrangement was perfected between the Office of Public Roads and a number
of counties between Washington and Atlanta, whereby
the counties placed the expenditure of their road funds
for maintenance on a given stretch of road under the
direction of engineers assignd by the Office of Public
Roads. The various sections of road placed under Government direction form a continuous highway between
Washington and Atlanta, thus making it possible for each
engineer to supervise approximately 300 miles of road.
Already the improvements resulting from the arrangemeat are very marked, and it is our belief that the roads
can be kept in excellent condition at less than it formerly
cost to keep them in a poor condition.
Gentlemen, I trust that the powerful influence which
you individually and collectively wield will be actively
employed in furthering the systematic and efficient improvement and maintenance of our public roads.

Soil Fertility--The Greatest Necessity and the Best
Investment.'
By CYRIL G. HOPKINS, Director of Agriculture, Southern Settlement and Development Organization, -Baltimore.
Maryland.
If a State like Maryland should entirely stop farming,
the people of responsibility and influence in the United
States would promptly wake up, and the startling fact
would be given the widest publicity at home and abroad,
with resulting investigation and remedy; but the fact
that farm land far in excess of the total land area of
Maryland has been agriculturally abandoned in the
North Atlantic and New England States during the last
thirty years is commonly unknown and almost unnoticed.
From 1880 to 1910 the area of improved farm land
(farmed land) decreased by 9,809,834 acres in New England, New York, New Jersey and Pennsylvania. This
aggregate or agriculturally abandoned farm land is
double the area of New Jersey; it is greater than Maryland and Delaware combined; it exceeds the total area
of Massachusetts, Rhode Island and Connecticut.
The records of the last census decade show that 921,996 acres of land, farmed in 1900, were found agriculturally abandoned in 1910 in the States of Pennsylvania,
Maryland and Virginia. This exceeds the total area of
Improved farm land in Rhode Island and Delaware combined.
The two primary causes for the decrease in productive
power and the final agricultural abandonment of these
vast areas of farm land are lack of knowledge and lack
of profit in farming as compared with industrial and
commercial enterprises. A few men of broad vision have
seen the conditions, but their comments or warnings have
been largely ignored and as yet comparatively little has
been done by the nation or by the States to remedy the
basic difficulties.
"If there is one lesson of history that is unmistakable it is that national strength lies very near
the soil."
About two-thirds of a century has passed since these
words of wisdom were spoken by Daniel Webster, but it
I Address before the American Bankers' Association, at Richmond, Virginia, October 15, 1914. (Doctor Hopkins is professor
of soils and crops at the University of Illinois, Champaign, Illinois, but connected with the Southern Settlement and Development Organization during a leave of absence of one year.)

was not till 1887 that the first appropriation was made
by the Federal Government for the establishment of
State experiment stations to conduct agricultural investigations; and thus far not one farmer in a hundred has
ever been furnished any definite information as to what
his soil contains, in what essential elements of fertility
it is most deficient, or how such deficiency can be most
economically supplied.
James J. Hill, himself a railroad man, recently made
the following statement:
"The farm is the basis of all industry, but for
many years this country has made the mistake of
unduly assisting manufacture, commerce and other
activities that center in cities, at the expense of the
farm."
Even the money spent on the Panama Canal might far
better have been devoted, at this time in our national
history, to the investigation of American soils—to securing necessary information and to the demonstration of
its -.practical application in profitable systems of permanent soil improvement, contrasted with the past and
present systems of soil robbing, land ruin and farm abandonment.
This was not a matter of much immediate concern so
long as rich, virgin, well-watered land was to be had
from the Government free for the asking by any one desiring to farm it, but almost coincident with the end of
the last century we came to the practical limit of our
free Government land at once suited to agriculture.
Thus the area of farm land in the United States more
than doubled from 1870 to 1900, and the increase was
34 per cent. during the last ten years of that period;
whereas from 1900 to 1910 the total increase in farm
land acreage was only 4.8 per cent., contrasted with the
continued increase of 21 per cent, in population for each
decade.
The area of improved farm land (farmed land) increased during the last census decade by 63,953,263 acres,
or by 15.4 per cent., but only 28,075,102 acres were used
for increased area of crops, of which 10,589,707
were
used for hay and forage, 7,768,737 for cotton, and
6,413,-

108

BANKERS' CONVENTION.

743 for cereal crops. Thus additional pasture land and
fallow ground must represent more than half the total
Increase.
In this connection it should be noted that while the
increase in acreage of all cereal crops was 3.5 per cent.,
the increase in production was only 1.7 per cent. from
1899 to 1909 (4,439,000,000 to 4,513,000,000 bushels2), and
in spite of increased pasture, hay and forage, there was
unquestionably a marked decrease in food-producing animals (cattle, sheep and swine) during the decade, the
Increase in horses evidently consuming the enlarged supply of hay and forage. (The census data show 193,000,000 head of cattle, sheep and swine in 1900 and 173,000,000 head in 1910, but the count was made for June 1,
1900, and for April 15, 1910, and consequently the results
are not strictly comparable.)
There was a substantial increase of 11.7 per cent. In
cotton production, but the acreage of cotton increased by
32 per cent. Even by five-year averages (1897-1901 and
1907-1911) cotton decreased in yield per acre during the
decade.
In order to feed the increase of 16,000,000 people we
were compelled to decrease our average annual exportations from 1900 to 1910 from 215,000,000 to 103,000,000
bushels of wheat, from 162,000,000 to 48,000,000 bushels
of corn, and from about 2,500,000,000 to 1,500,000,000
pounds of meat. These figures represent five-year averages, 1898-1902 and 1908-1912, respectively, and these
data indicate that we shall practically cease exporting
meat about 1925, wheat about 1920, and corn about 1915.
(Much corn has been imported during the last twelve
months, for the first time in our history.)
From this mass of highly trustworthy data and the
well-known increased cost of living, the people's representatives to whom is intrusted the guardianship of State
and national welfare, both in public life and in the business world, may well ponder the words of a wise Chinese
philosopher:
"Public prosperity is like a tree; agriculture is its
roots; industry and commerce are its branches and
leaves. If the root suffers, the leaves fall, the
branches decay, and the tree dies."
But in striking contrast with this established philosophy, and in harmony with Mr. Hill's truthful statement,
the annual appropriation from the Federal Government
to the agricultural experiment stations in all the States
aggregates less than one and one-half million dollars,
while a bill for rivers and harbors may carry from fifteen to fifty million dollars. It should be kept in mind
always that the revenue of the Federal Government is
many times the aggregate revenue of all the States. In
other words, the central Government is rich, while most
State governments are relatively poor, practically all
forms of indirect taxation and some very important
direct taxation being controlled by the Federal Government.
As agriculture is the basis of industry and conimerce,
so the fertility of the soil is the fundamental support of
every form of agriculture; and a greater localized knowledge of soil fertility is the greatest need of American
agriculture.
A thorough and complete investigation of the soils in
a county, or in a State, should include three lines of
work:
a
2 The fairness of this comparison has been questioned by
committee of the "Chamber of Commerce of the United States
of America," representing some Boards of Trade in this country, on the ground that 1909 is alleged to have been a poor
year for corn, which is a crop of such magnitude as to markedly
Influence the aggregate of all cereals; but the crop statistics
of the United States Department of Agriculture show that the
production of corn in 1909 was 33,000,000 bushels above the
average for the nine years 1905 to 1913 (centered on 1909),
while the production for 1899 was 3,000,000 bushels less than
for the nine-year average 1895 to 1903, thus showing that 1909
was not a poor year for corn.

First—A detail soil survey showing the various kinds
or types of soil with their location and boundary lines,
even down to areas of five acres on every farm.
Second—The chemical analysis, or fertility content, of
each kind of soil.
Third—The results in crop yields, from actual field
trials, as to the effect of intelligent soil enrichment in
rational economic systems of farming.
Without doubt the institution best qualified, from the
standpoint of location, interest, and local responsibility,
to make these soil investigations is the State Agricultural
Experiment Station; and neither State or nation could
make better use of the public revenues than by more
adequate appropriation for such analyses and experiments; but because of its more liberal support there has
been a strong tendency for the United States Department
of Agriculture to try to do local State work, which could
be far better accomplished by the State institutions,
which are directly responsible for results to their home
people.
It Is a sound principle of economics that the closer the
relationship between employer and employee the greater
will be the efficiency and practical value of the service
rendered. Thus local agricultural investigations and the
local extension of agricultural information, like local instruction in schools and colleges, is best accomplished
under local authority.
The wisdom of real statesmen is represented in the
Acts of Congress known as the Morrill Bill, signed by
President Lincoln in 1862, which provided for the establishment and partial support by Federal appropriation
made under the second Morrill Bill and the Nelson
amendment; the Hatch and Adams Acts, which establish
and provide some support for the State Agricultural Experiment Stations; and the Lever Bill, which provides
for the establishment and partial support of local Agricultural Extension Work, as the third leg of the complete
tripod for the support and upbuilding of American agriculture in every State and in every county. But in striking contrast with this wise, comprehensive, and economically sound Congressional legislation Is the attempt of
some Federal bureaus of the Department of Agriculture
to conduct local investigations and local extension or
demonstration work, often without Congressional authorization, to the detriment'of the State institutions, and
sometimes to the discredit of the work and to the delay
of the adoption of truly permanent scientific systems of
agriculture.
Thus, during the last fifteen years the Bureau of Soils
of the United States Department of Agriculture has
made soil surveys with more or less detail in more than
,a thousand different counties and in all the States; but
this vast accumulation of maps and reports from large
expenditure of time, energy and money, is essentially
unused and useless, so far as the farmer is concerned,
because practically no information is given as to the
abundance or deficiency of the different important elements of fertility or plant food, and local investigations
are lacking as to the benefits to be derived in field practice from the addition of deficient elements or from liberating and utilizing those elements which the soil may
contain in abundance or in inexhaustible supply.
To survey a man's farm, and later hand him a map
and a report, informing him that he has two types of soil,
one of which produces one-third bale of cotton, or twenty
bushels of corn, while the other is better adapted to
truck crops, is usually to tell him what he already knew;
and yet this represents the essentials of a thousand published reports by the Federal Government on county soil
surveys. Thus, the following is the summarized statement concerning the most extensive soil type in Covington County, Alabama, as given on page 35 of the report
Issued May 8, 1914:
"The Norfolk fine sandy loam Is the most exten.

BANKING SECTION.
sive type. Only a small proportion of it is under cultivation. It is recognized as one of the strongest
types of the series for corn and cotton. When well
drained it is adapted to a wide range of crops, particularly the legumes, medium truck crops, and
cigar wrapper tobacco. Land of this type may be
purchased for $10 to $25 an acre."
merely
The more detailed statement on pages 19 and 20
the color, location and native
adds a description of
vegetation (pine, dogwood, gallberry, broom sedge and
wire grass), and states that "the Norfolk fine sandy loam
has been derived from the weathering of the unconsolidated beds of sand and clay forming the Coastal Plains
material."
No information is given as to the contents of this soil
in the different elements essential to crop production;
no culture experiments are reported; and no evidence
furnished that any one knows how to change by economic
means and practical methods the acre-production of this
land from one-third bale to two bales of cotton or from
twenty bushels to eighty bushels of corn, and the value
from $10 or $20 to $200 or more per acre.
The same mail brings a report of the soil survey of
Boone County, Indiana, issued May 2, 1914, and in the
discussion of the most extensive soil type in this county
occurs the following statement (page 27):
"The average yield of wheat has declined during
the last twenty years. Formerly returns of twentyfive to thirty bushels were frequently secured, but
in recent years from fifteen to twenty bushels are
more commonly reported."
But the farmer may read the entire report and still
remain just as much in the dark as to what his soil contains in large or small amount, or how he may best restore the former higher productivity.
These reports and conditions are not here discussed
with any thought of either endorsing or criticising the
Federal soil surveys, but only to call attention to the
fact that fifteen years' work and a thousand county soil
reports must remain (as they are now commonly and
rightly considered by the farmers themselves) of little or
no value to American agriculture, unless the survey is
supplemented by soil analyses and local field experiments.
A properly made soil analysis will reveal at once the
total stock of each important element of fertility in the
soil; but this information may well be supplemented by
field experiments to ascertain and demonstrate the rate
at which these plant-food elements can be liberated and
to determine at what point or under what conditions, in
rational farm practice, the farmer should begin the purchase and addition of any element of fertility.
To illustrate the possible value of soil analysis, I may
state that one line of service which the Southern Settlement and Development Organization sometimes renders
is to examine and pass judgment on tracts of land available for agricultural improvement either by the owners
themselves or by those who may be encouraged to settle
upon such lands. Soil analyses have been made in connection with the investigation of about fifty such projects, and among these fifty tracts the total phosphorus
content of the plowed soil of an acre has been found to
vary from 188 pounds to 1,534, the potassium from 882
pounds to 49,958 in the same weight of soil, the calcium
from 402 pounds to 486,058 pounds per acre, the magnesium from 560 to 20,790 pounds, the nitrogen from 626
to 32,248 pounds, and the limestone from 5 tons below
zero (measured by soil acidity) to a positive content of
600 tons per acre. Few men of common sense, and no
thorough student of soil fertility, will question the practical value of such exact information as is thus afforded
only by chemical analysis.
The analysis will often indicate very clearly whether
the farmer's problem is to purchase plant food or to liberate it from an inexhaustible supply already existing

109

in his soil; whereas a field trial made with no knowledge
of what the soil contains may give very misleading results; and such results followed in ignorance may lead to
the waste of money and to the ultimate depletion of the
soil. Thus caustic lime may produce increased yields
for a time when applied to a soil already well supplied
with lime but deficient in nitrogen and humus. The effect of the lime in such case upon the yield of a crop
of corn is due not to the lime requirement of the corn
crop, but to the fact that caustic lime has power to decompose organic matter and thus to liberate some nitrogen from the meager supply of humus still remaining in
the soil. It was this use or misuse of lime which gave
rise to the German proverb:
"Lime makes the fathers rich, but the children
poor."
Where wheat was grown year after year on Broadbalk
field on the famous Rothamsted Experiment Station in
England, exactly the same increase was produced (5.6
bushels per acre), as an average of the first twenty-four
years, whether sodium or potassium was applied. Such
results leave one wholly ignorant as to the real needs of
the soil. Sodium is not an element of plant food; it is
not needed by plants, and its beneficial effect must have
been due to its power to liberate from the soil some
essential element or elements, such as phosphorus or
potassium. Even the effect of the potassium applied in
soluble form may be due in part at least to its power to
liberate phosphorus. Chemical analysis shows about
1,000 pounds of phosphorus and 35,000 pounds of potassium in the plowed soil of an acre at Rothamsted, which
reveals very plainly that in practical farming on that
land the plan should include the liberation of potassium
from this enormous supply already in the soil, while
phosphorus may well be purchased for positive soil enrichment.
This is a question of especial interest at the present
time, when the fertilizer manufacturers find it impossible
to secure potash from Germany, and when all are beginning to realize that millions of dollars have been needlessly expended by them in the past, and added millions
wasted by farmers, for the application of potassium to
soils already containing an inexhaustible supply of that
element, requiring only liberal use of ground limestone
and decaying vegetable matter for its liberation. This
statement applies not to the sand soils of the Coastal
Plain, or to the muck soils of some Northern States and
of Florida, which are positively deficient in potassium,
but to the great agricultural soils of the United States,
which normally contain truly inexhaustible supplies of
that element.
On the other hand, largely because of lack of local
knowledge, we have been trying to commit agricultural
suicide by exporting millions of tons of our highest
grade phosphate rock, thus carrying away the element
of fertility which is most deficient in the American farm
soils, and which most limits the crop yields in rational
farm systems. Intelligent and profitable applications of
Southern phosphates and Northern limestones, with liberal use of legume crops thus made possible, will check
the agricultural suicide of New England and the North
Atlantic States, and transform a system of gradual soil
depletion into one of positive and permanent soil enrichment in the great corn and wheat States from Maryland
to Minnesota.
For immediate results in one crop on soils deficient in
decaying vegetable matter, the phosphorus should be applied in readily available form, such as acid phosphate;
but in rational systems of permanent soil improvement
where the nitrogen required for crop production is provided by liberal use of clover or other legumes, plowed
under as green manures or in farm manures, finely
ground natural rock phosphate may produce even more
.
profitable and more lasting benefits.
The phosphate producers of Florida who have been

110

BANKERS' CONVENTION.

robbing our own American children of a rightful inheritance by exporting this product, should immediately
• establish adequate grinding plants either at the mines or
at the Northern ports, and proceed to develop in the
Northeastern States a larger and more permanent market for their raw product than they have ever had in
foreign countries; and they ought not to be dissuaded
from this much-needed economic and patriotic enterprise
by those who use $8 worth of raw phosphate in the manufacture of so-called "complete" fertilizers that sell for
$80. Without question the more readily available highly
manufactured "complete" fertilizers can be used with
profit in the production of crops of high acre-value, such
as truck crops, tobacco, and to a large extent for cotton;
but that they cannot be used economically for the restoration or maintenance of fertility in general farming
with the staple grain and grass crops is conclusively
proven by many long-continued investigations and abundantly witnessed by the agricultural abandonment of
10,000,000 acres of "improved farm land" in States
where the commercial fertilizer interests have completely covered and "worked" the territory for many
years.
If time permitted I could present the details of all
trustworthy field investigations, but any one can easily
verify the statement that phosphorus commonly pays
back two to three times its cost, while money spent for
commercial nitrogen or potassium on normal soils is
rarely recovered in full from increased yields of corn,
oats, wheat, and hay. Thus, as an average of results
from twenty-four years of actual field trials at State College, Pennsylvania, including four trials every year with
each of these four different crops, every dollar invested
in phosphorus paid back $2.94 in increased produce at
safe, conservative prices, while neither nitrogen nor potassium paid back their cost. Equally convincing results
were secured from trials covering twenty years at Wooster, Ohio; while, as an average of twelve years' work
by the Ohio Experiment Station at Strongsville, for
each dollar invested phosphorus paid back $6.60, nitrogen 22 cents, and potash only 12 cents, at conservative
prices for the value of produce in the field.
As a general average of investigations with fine-ground
raw rock phosphate, covering twelve years in Maryland,
nine years (with field crops) in Rhode Island, twelve
years in Pennsylvania, fifteen years in Ohio, four years
in Indiana, and five years in Illinois, for each dollar invested in phosephate, $6.31 was returned in the increased
farm produce.
Every honest man who is familiar with the details of
American agriculture must agree that as commonly practiced general farming is not a highly remunerative business, but the fact is just as clearly established that the
intelligent improvement of the fertility of land in
cultivation offers both the safest and the most profitable
investment now open in this country. But to make such
investments intelligently and safely requires the definite
information to be secured by soil investigations.
In conclusion, permit me to state and to emphasize by
illustration that it would be very unwise to depend solely
upon chemical analysis in passing judgment on the value
of land. The physical characteristics as well as the
chemical must be considered, including especially the
texture and structure of the top soil and sub-soil, the
topography and altitude with respect to possible erosion,
inundation and drainage, and the relative stability of the
soil after drainage as influenced by possible settling or
burning.
Muck or peat soils, for example, are subject to settling
and burning after drainage has been provided. Thus
systems of drainage which would prove adequate for
areas of ordinary soils have been found altogether insufficient or entirely useless for deep muck soils. Even
skilled drainage engineers have at times erred greatly
in providing drainage systems for such lands, notably in

certain sections of the North Central States, owing to the
settling of the muck as the water table is lowered.
In the typical Everglades of Florida, the muck has
an average depth of more than five feet, and over vast
areas the depth exceeds ten feet. The water table is now
most commonly at the surface; thus, in reference to the
existing drainage canals through the 'Glades, the recent
report of the Everglades Engineering Commission states
that "these canals have been practically 'bank full'
ever since they were opened."
To a greater or less extent, the muck is suspended in
water, and if the water table is lowered by three feet,
the surface of the muck would likewise settle three feet,
either immediately or ultimately. This applies, as stated,
to the typical condition of the Everglades proper, not so
specifically to the areas of shallow muck bordering on
the Everglades, or to the region of more compact muck
surrounding Lake Okeechobee.
The State of Florida may well investigate the extent
to which muck may settle before adopting the drainage
scheme proposed in the recent report of the Florida Everglades Engineering Commission, printed as United States
Senate Document No. 379, by order dated January 29,
1914, and suggesting the expenditure of more than twenty millions of dollars in order to lower "the water surface three feet below present ground surface," which
relates to the water in the canals from three to ten miles
apart. The settling or subsidence of the muck beneath
and above the surface of the water by compression and
by decay and tramping under cultivation is not taken
into account in this report, by drainage engineers, but
only the immediate strinkage by partial drying of the
• three feet of muck to be theoreticailly exposed above the
water. Thus the following statement appears on page 63
of the report:
"The final plans herein presented are based on the
assumption that the upper foot of muck will shrink
vertically 7.8 inches, while the remainder of the column down to the water table will shrink not at all."
In contrast the following statement is quoted from
page 23 of Bulletin No. 71 of the United States Department of Agriculture: "The Wet Lands of Southern Louisiana and Their Drainage," issued April 30, 1914:
"Originally the muck was about three feet deep,
although at present, after twelve years of cultivation
and decay, it is well compacted and has subsided or
shrunk until it now averages two and one-half feet
lower than it originally was."
If in actual experience three feet of muck is reduced
to six inches where it rests on solid earth, what might
be the subsidence where the muck is from five to ten or
twelve feet in depth and partly suspended in water?
Florida should not be permitted to waste twenty-two
million dollars of the people's money, in addition to the
three millions already wasted, in another ineffectual attempt to drain the Everglades, not even upon the advice
of prominent men noted now both for their engineering
knowledge and agricultural ignorance.
These facts are cited merely as a present pressing
and important Illustration of the possible waste or unwise use of money in the name of agriculture but with
little or no resulting benefit. I call your attention to this
particular project because both the American Bankers'
Association, which you represent, and the Southern Settlement and Development Organization, which I represent, have large responsibilities to the American public,
and before this enterprise is pushed forward, we should
urge that the Florida Experiment Station, the people's
own institution, should investigate the agricultural questions involved in the drainage of the Everglades. But
as a closing word, I must remind the Florida bankers
that your State makes no appropriation whatever to your
State Agricultural Experiment Station, and I may well
call to the attention of this National Association the fact
that under the legislation thus far provided, of the three

BANKING SECTION.
permalegs of the tripod established for the support of
In
nent agriculture, investigation is by far the weakest
of the teacher of agriculother words, the greatest need
adviser
ture, and the greatest need of the agricultural
more complete, definite,
or demonsctration agent, is for
would urge upon
local agricultural information; and I
adequate support for
you the importance of securing
Stations, particuyour State Agricultural Experiment
investigations in soil ferlarly for the specific purpose of
basis of industry.
tility, the support of agriculture—the
Federal funds for
If asked how best to provide
answer
the support of agricultural investigations, the
is:
Stop building national warships and coast defences and
unite the national navies of the world into an international or world navy, to be controlled by a representative
international commission or congress, and thus maintain
world peace with world power; for not until the dawn of
the millennium can we hope for permanent peace from

111

sentiment and treaty. The union of all navies at the
close of the present war into one international naval
power for the preservation of permanent international
peace should be less difficult of achievement than was
the union of the States into the United States at a time
when battles were sometimes fought a month after peace
was declared. Surely nations may trust for justice to
the wisdom and fairness of such a representative international congress, just as our States must trust our national Congress; and such a project should hasten the
termination of the international war.
When we take down our coast defences and cease
building warships for destruction, then the income tax
at least could well be divided between the Federal Department of Agriculture, for the investigation and control
of such interstate and national interests as pure foods and
animal diseases, and the State Agricultural Experiment
Stations, for the investigation of soils and other local
agricultural problems.

Educating the Producer.
BY J. D. EGGLESTON, President of the Virginia Polytechnic Institute, Blacksburg, Va.
Danton once said that "after bread, education is the
greatest need of a nation." We live to-day in an era
when the order is reversed; when we must depend upon
education to show us how to produce sufficient bread for
our needs.
That the nation is realizing this stern fact is shown
by the interest awakened in every effort to educate the
adult and the youth of the rural community in terms
of efficient agricultural production. It is shown by the
constantly increasing efforts of the agricultural colleges
to reach more farmers, and to show them how to increase their output. It is shown by National aid given
to agricultural education. It IS shown by the widespread
movement to organize the boys and girls into corn and
garden clubs, pig and poultry clubs, sewing, cooking and
manual training clubs, and into other groups that tend
to relate the children's education to their present and
future economic and social life. It is this tendency that
is resulting in agricultural high schools of various
kinds.
Before discussing in detail the opportunities for educating the producer, I desire to discuss briefly the question, why we educate and what education is. I refer,
of course, to public education, because thirty-nine out of
every forty boys receive their education through public channels. The State assumes the right to educate
children and youth, and assumes the right to tax property for that purpose, on the sole ground that education
diffuses intelligence and increases morality; that an intelligent and stable people will make a State in which
liberty will be safeguarded, the laws respected, and
right conduct encouraged; that no State can survive
where ignorance makes and administers the laws; that
life, liberty, and the pursuit of happiness can be enjoyed only among an intelligent people; that education makes for right conduct in all the affairs of life, and
that right conduct, which is righteousness, exalteth the
State. To sum it up in a sentence, the State assumes
the right of educating its people on the sole ground that
education makes for god citidenship.
I believe that we have almost entirely forgotten, and
that therefore we need to keep before us constantly, the
fact that the only legitimate function of education is
the production of efficient citizens. Now, good citizenship
comprises three qualifications:
A desire to serve the State or community; a trained

capacity to serve the State or community; and health of
body as a basis to uphold the desire and the capacity.
What, then, are the real "
fundamentals" in education? Are they merely the three "R's" that children are
required to learn? No; the fundamentals are a healthy
body, a trained capacity to live and make a living normally, and an unselfish outlook on life; and yet year in
an year out the educators of the country, with the
assent of the parents, force the children to go to school
and acquire arithmetic and adenoids; history and bookworm; algebra and astigmatism; cube-root and consumption; Cresar and spinal curvature; and then ninetyseven out of every one htIndred of them go forth into
life unable to apply their so-called education to the immediate problem of making a living—a problem that immediately confronts that number.
Now, what doth it profit a State if the children gain
the whole world of knowledge and are unable to apply it?
what doth it profit a State if the children gain the whole
world of knowledge and have not the soul of good
citizenship? what cloth it profit a State if the children
gain the whole world of knowledge and have not good
health?
It happens that the three "R's" (or reading, writing
and arithmetic) are essential, but they are essential
only as contributing to the capacity of the individual
to serve the State or community while making a living
normally. And to place them in the position of being
fundamentals in education takes the emphasis away
from efficient citizenship, and, in fact, tends to lose sight
entirely of the question of citizenship. I am convinced
that the chief reason for the formalism and lack of
vitality in the course of study in the public schools—
the chief reason why the course of study is so little
related to everyday life—is because we have lost sight
of the real function of public education.
Why, it is only our own narrow and even stupid outlook that makes us confine education and the educative
processes to the schoolroom, and to children while in the
schoolroom. It cannot be too often or too emphatically
said that education—if it be worth anything—is not a
matter of childhood for childhood, beginning with childhood and ending with childhood, but is a matter of life
for life, beginning with life and ending with life. The
educative process, if it is good at all, is just as good out
of the schoolhouse as in it, and if it cannot be applied

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to better living out of the schoolhouse, it is worse than
worthless. Education is education, whether in a schoolhouse, in a schoolyard, in the home, in the garden, out on
the farm, in the factory, or anywhere else.
The very corner-stone upon which our educational system rests is this: That if anything is worth doing, it
is worth doing well, and that whether it be work or
play; whether it be plowing a row of corn or reading
Greek; whether it be planting potatoes in the earth
or preaching righteousness to human hearts; whether
it be painting a picture or painting a house; whether it
be digging a ditch or performing an operation in surgery, it is best done when he who does it has been trained
to do it with efficiency, and with a passion to do it better
than it has ever been done before.
If, then, the function of education is to turn out, from
the raw material of childhood, a product in terms of
efficient citizenship, we must all confess that our schools
are the only manufacturing plants in the world that
make practically no surveys of their communities before the erection of the plants, and that, for that matter, the school as a manufacturing plant does not, as a
rule, make any survey of its community even after it
has been erected. Professing to cure a condition, it
does not begin by diagnosing that condition.
I may say in passing that education will not become
with us a serious matter until we pay teachers sufficient wages, and make them sufficiently comfortable to
remain in their respective communities until they become, in every sense of the word, a vital part of the life
of the community. There is absolutely no hope of educating the producer, or the consumer, or anybody else in
our rural schools as long as the rural school teachers
continue to be, as they are now, a migratory flock.
Very few of them hold their positions long enough to
become acquainted with their communities, or to exert
any lastingly beneficial influence upon them.
The average length of service of the school teacher
in the United States, in one-room and two-room schools,
in any given community, is one and four-ninths years,
or 233 school days. With the low salaries, and with
absolutely no provision made for housing the teachers,
it is no wonder that they move along every year or two.
In Switzerland, where they make education a serious
thing, the teachers often stay throughout their entire
lifetime in one community. They are given homes in
which to live, with a garden attached, and they expect,
and are expected, to settle down either for their whole
lifetime, or for a goodly part of it, in the community
where they first begin to teach.
And now, to get down to our subject, what is the best
way to educate the producer, so far as the rural districts
are concerned?
Since 1905 there has been a determined effort made
in the South to hitch up education with life by educating the producers on the farm to increase largely
their yield per acre, and to interest the boys and girls
by training them to produce a much larger yield on the
farms and in the gardens than their fathers and mothers
have produced. This has been done through what is
known as the co-operative demonstration work, with
which all of you are familiar in a general way, and with
which some of you are familiar in intimate contact.
This method was first suggested by Dr. Seaman A.
Knapp, and was financed by the General Education
Board of New Work City, and through the United
States Department of Agriculture, in co-operation with
the States and counties.
The method of demonstration work is this:
To send to the farmer, on his farm, a man who will
tell him how he may, on his own farm, for his own
profit and by his own labor, make a greater yield. This
method, both because it has been new and because of its
very simplicity, has been misunderstood in some instances, and has been treated either with indifference

or with positive opposition. It has been regarded, in
some quarters, as trying to usurp the prerogatives of
agricultural colleges, experiment stations, agricultural
high schools, institute trains and short courses in agriculture.
But it has been found out by actual count that only
one farmer in two hundred ever attends an agricultural
meeting of any kind; that the number of adult farmers
who go to an agricultural college is infinitesimal; that
notwithstanding the good work done by experiment station bulletins, institute trains and other worthy efforts,
only a very few of the farmers are reached in comparison with the vast number that are not reached;
and that even a considerable number of those who do
attend institute lectures and read bulletins, do not follow out the suggestions made to them. These are the
reasons for the method of attempting to show the farmer
on his own farm exactly what to do to improve his
methods.
The thing had been done thousands of times in a
private manner.
When Neighbor Brown, having
"learned a thing or two," told Neighbor Jones that his
way of working corn wouldn't bring the best crop there
was quite a discussion. But finally, when Brown's crop
beat Jones's, the latter began to think. The next year
Jones asked Brown a good many questions, and concluded to try Brown's plan. But habit was strong in
Jones—habits in farmers are as hard and strong as
their muscles—and in several little particulars Jones
varied from Brown's directions, forgetting that it is
the little foxes that spoil the vines. And the crop didn't
"pan out." Jones "knew that thing was all nonsense,
anyhow ; he "had heard that college feller talk that
"
way at a farmer's institute," but had forgotten what he
said before he reached home. But when Brown went
over and looked at the crop, he put his finger on the
"little particulars" in which Jones had followed habit
instead of following directions. Jones wondered how
Brown knew. Next year Brown went over at Jones's
invitation and showed Jones how to plow. Jones thought
up to that time that anybody could plow. Brown made
Jones go over that ground with harrow and drag until
the latter swore the whole six acres would blow away
the first time a stiff wind came along. Then Brown
looked at Jones's corn ready for planting. "This corn
won't do for planting," said Brown. Jones thought
Brown must be crazy, but he only asked, "Why?"
"It's rat-eaten," said Brown, "and it is not prolific,
anyway." And Brown explained, "Don't you know
there are 'runty seed' and 'blooded seed' as well as
'runty pigs' and 'blooded pigs'?"
Brown went to the corn house with Jones and picked
out the best corn he could find. And as the crop progressed, Brown made Jones go over the crop and keep
the land finely mulched. Jones had his doubts still, but
as anxious as he was to say, "I told you so," his pocket
nerve had twinges that made him prefer a stiff crop to a
stiff pride. Jones made twice the crop that year. Having found out that a thirst for good crop meant a thirst
for knowledge, Jones soon discovered that what he
thought was worn-out land on his farm was really wornout ideas in his head. So he made Brown come over and
show him on each crop until he got the "hang" of it;
and that is demonstration work!
Now, the co-operative demonstration work is simply
an effort of the State and National Government to do on
a large scale what Brown incidentally did for Jones.
Started on one farm in Mississippi in 1906, this work has
grown to such proportions that Congress has just passed
the Smith-Lever Act giving money from the National
Treasury for this purpose, and it is now a National
movement.
As this co-operative demonstration work has just begun under the Smith-Lever Act in the North and West,
it is not possible yet to speak in detail of the propor-

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tions it is already assuming. The Department of Agriculture at Washington writes me that there is now in
the North and West an enrollment of over 110,000 boys
and girls in the corn, garden, canning, potato, poultry
and other clubs. The work is growing rapidly in the
North and West, and will in a few years assume enormous proportions. In fact, demonstration work on what
is known as the "project plan" in these sections of our
common country has been carried on by many individual
States for several years. In California, for instance, the
garden clubs appear to have reached very large proportions, and to be very successful. Massachusetts has
about 33,000 boys and girls in the demonstration clubs;
Utah bas over 18,000, and Oregon has over 11,000. The
figures will be out of date to-morrow, so rapidly is this
work growing.
As this work has been conducted on a definite plan in
the South since 1906, it is possible to speak in more detail about it, and I may be pardoned, therefore, for referring to it in this way.
Exclusive of the Washington office and clerical force,
there are nearly 1,200 men and women in the South
acting as demonstration agents. These are engaged in
adult and boys club work, and in girls canning and
poultry work, and in home economics for women. The
total number of adult farmers using demonstration
methods was last year a little over 102,000. The enrollment in the club work for the boys was over 40,000, and
for the girls over 28,000. Each year has seen the quality of the agency force improving. The truth is, the
demonstration agent in a county has to know nearly
everything that is to be known, and although he is everywhere encouraging the growth of grasses, he cannot
let any grass grow under his feet! Most of you have
read in the papers the phenomenal yields of corn per
acre raised by the corn club boys in the South. You
have heard of Jerry Moore, of South Carolina, who
raised 228 bushels on his acre. Last year young Dunson, of Alabama, raised 232% bushels on his acre, at a
cost of a fraction under 20 cents per bushel. Young
Polk, of Mississippi, raised 215 bushels at a cost of 21%
cents per bushel, and there were phenomenal yields
made in each of the other Southern States.
These yields, however, do not tell the whole story,
because the boys in the corn clubs, as well as adult
farmers, are taught how to enrich the soil and not to
mine or skin it while producing this larger yield; and
they are taught to follow the crop with grass, so,that
while getting good crops the soil is built up from year
to year.
If I may be pardoned for mentioning my own State, I
may say that in 1913-14 Henry Oder, of Appomattox
County, made over 154 bushels of corn on his acre at a
cost of 24 cents per bushel. Ten boys in Augusta made
between 100 and 144 bushels, while 68 boys in this State
made over 100, at an average cost of 24 2-5 cents per
bushel.
We have for fifty years been thinking of Appomattox
County as the place where Lee had to surrender after
his army had worn itself out whipping the bluecoats,
but now we have a fourteen-year-old boy making 154
bushels of corn on an acre in that county, and we have
at Appomattox Court House an agricultural school with
a large boys' corn club in it and 400 pupils. Truly,
peace hath its victories no less renowned than war!
The girls' garden work is done mainly through women
demonstration agents. Each girl takes one-tenth of an
acre, and is trained to get the highest possible production out of it. Portable canning outfits, convenient in
size, are provided, varying in price from $6.50 to $12.
The canning is done under the direction of the agent and
In the most thorough and up-to-date manner. The goods
rank very high on the market Thus far there has been
little trouble in disposing of the canned product.
Some girls have made enough money to send them-

113

selves to the Normal schools. One girl, on one-tenth
of an acre, at a cost of $41.10, counting cost of materials and counting her own labor at 10 cents an hour,
put up 950 cans of tomatoes besides furnishing to the
home $21.50 worth of raw tomatoes and selling $2.50
worth. Affter selling the canned tomatoes her net
profit was over $60 on her one-tenth of an acre. Another
girl put up 1,008 cans at a cost of $33.07, sold the output
for $110.80, making a net profit of $77.73.
In one State a club of 37 girls averaged $25.42 net In
another State a club of 19 girls averaged $17.60 net.
One farmer advised his little daughter not to stake up
her tomatoes, as he had always gotten a good crop without it The woman agent advised otherwise. The little
girl took the advice of the agent and raised on the same
area three times as many as her father. Another little
girl said: "I enrolled as a club member' because I
wanted to do something by myself and have some money
of my own."
Only a few years ago the large body of Southern
farmers thought it impossible to raise mixed grasses in
the South. In 1912 15,000 acres in mixed grasses were
cultivated under demonstration methods in Virginia
alone, in 1913 40,000 acres. Some of these plots have
yielded 3% tons to the acre straight through the crop.
We hope in a few years to have Virginia selling hay
Instead of buying it from outside.
Here is what one seedsman in one county says about
the increased acreage in grass and clover seed:
"Judging from our sale of grass and clover seed this
past year, I should say there is a gain of over 200 per
cent over 1912. The acreage in crimson clover alone is
five times as great, for we have sold in our county alone
2,000 bushels of crimson clover seed."
In 1912, under demonstration methods, there were
2,000 acres put in alfalfa, of which 90 per cent. gave firstclass results. In 1913 the acreage was exactly double,
being 4,000 acres.
And so I might continue on indefinitely. The farmers
and the boys are being taught the importance of seed
selection, the importance of clover crops, the importance
of good drainage, and we now have two men giving their
whole time to answering the calls of farmers who wish
to have surveys made showing them how to drain their
lands.
The demonstration agents are taught to use the Babcock tester, and have taken these around with them and
instruct the farmers, so they may learn the difference
between the cow whose feed goes to milk and cream
and the cow whose feed goes to horns and head. In
one instance a farmer who wished to buy a good cow
was undecided which of two cows to buy, as one looked
as good as the other. The demonstration agent came
along and showed the farmer how to test the milk with
the Babcock tester. He found that one cow was giving
12% pounds of butter, and the other 4% pounds per
week. One illustration of this kind to a farmer is
worth a dozen lectures and a ton of bulletins.
In 1913, under the influence of demonstration agents,
hundreds of pure-bred sires were brought into the
South. Here in Virginia 227 farmers were induced to
start the raising of hogs by rotation of crops. This
rotation takes nothing from the soil but phosphorus and
adds a great deal of humus. The hogs harvest the
crops and the farmer harvests the hogs. W. S. Forbes &
Co., of this city, large packers, offer to take every pound
of hog meat at Chicago prices, plus the freight.
A wonderful stride is being made in the South in the
purchase of up-to-date machinery.
It is almost as true of the boys and girls as it is of
the farmers and their wives that the great majority
of them cannot attend an agricultural college or school
in order to be educated as producers, and even where
the boys and girls do attend graded and high schools, the
course of study is not fitted to the needs of the every-

114

BANKERS' CONVENTION.

day life which the boys and girls are to lead, or ought
to lead.
My friends, the day is already at hand when the
rural school must control the food supply of this nation.
The child should get, at the school and through the
school, everything that he needs for his normal growth
as a citizen. A purely academic course of study—the
kind we now have—causes the school to become an active emigration bureau, and either depopulates the community or at least keeps it at a stagnant standstill. The
value of a theory is in its application. Likewise the
value of an education.
The Committee of Twelve of the National Education
Association, appointed' to investigate the subject of industrial arts in the rural schools several years ago,
solemnly reported that in their opinion industrial arts
could not be taught in rural schools, owing to a lack of
equipment and materials, to lack of money with which
to purchase same and to lack of trained teachers. This
solemn report of some of our leading educators deserves
a place with the solemn report which was once made
on the utter impossibility of getting a boat across the
Atlantic Ocean by steam power, and which said report
was carried across the Atlantic by the first steamboat
that ever crossed over from the United States to England.
It has been demonstrated in many, many places in our
common country that industrial arts or practical industrial training for rural children can be taught in the
small rural schools as well as in the big ones. If we
are to wait for elaborate equipment, for a full school
treasury and for teachers already trained for this purpose we will wait until Gabriel blows his trumpet. I
undertake to say that there is not in the South a community so poor and so backward that practical industrial training cannot be introduced in the schools, and
successfully conducted, and that this practical industrial
training will include sewing, cooking and gardening
for girls and manual training and gardening and farm
work for boys. As has been said by one of the most
successful teachers of industrial arts in two of our most
rural counties, "The secret of success lies in using the
materials at hand, and instead of waiting for a perfectly equipped artificial laboratory, to learn to use
Nature's laboratory found on every hand.' Teach pupils
how to accomplish much with little, to make what they
have take the place of what they have not, to use native
resources; for this is our great lesson in national economy."
I know of two very rural counties where a teacher
began work in five one-room and two-room schools,
equipping each of them at an expense of $12 for the
cooking utensils and $5 for the tools for the boys. The
boys used the tools to make cupboards, tables and
shelves for the workroom which was built by the community. The girls made muslin curtains for the cupboards; the cupboards were made from ordinary boxes.
The girls made napkins for the tables by hemstitching
sugar bags, saved at home. The pupils bring the supplies for the kitchen larder from home and cook potatoes,
rice, soup, eggs, coffee, breads and cakes. The cooking
class serves something hot for lunch every school day.
The girls and boys learn how to set the table, how to
serve a meal and how to eat a meal—much neglected
factors in educating our children.
By studying the distribution of foodstuffs, the sources
of textiles, the measurements necessary for making garments,. the relative quantities of materials needed for
cooking, the children learn the geography, arithmetic,
spelling, writing, reading and language of the everyday
life, instead of learning these things as subjects related
to an artificial life.
How is this started? Simply by having a teacher who
knows how and who goes from school to school and
shows the teacher and children in each school how to

do these things, and in this way develops in the teacher
and in some of the pupils the capacity to lead, so that
before long the visits of the industrial teacher 'become
less and less frequent.
The boys go into the woods, select wood, cut and prepare it for use. They have made farm rakes, axe handles, tables, bookshelves, tabourets, umbrella stands,
hatchet handles, picture frames, hall trees, etc. As this
industrial teacher says: "These country boys may not
turn out as many articles, or as well-made ones, as the
more regularly conducted classes of the city schools
with elaborate equipment, but we are aiming to make
men; not furniture.
In the schools in these counties this teacher has
shown the teachers and children how to make nice mats
and baskets out of the wild honeysuckle that grows profusely along the roadways, and how to make baskets
out of pine needles and corn shucks and the ordinary
willow. One of the prettiest sights in one of these counties was that recently seen of a group of twelve happy
children making baskets under the trees at the school,
while another group of the older girls were in the workroom cooking and sewing, and the larger boys were in
another part of the school yard making a fireless cooker
and a seed tester. Every child busy doing something
purposeful; and therefore every child happy and keeping good order, even if they were laughing and talking.
This is education. This is making efficient citizenship.
This is the function and the sole function of the public
school and out of all this work, and out of the boys'
corn club work and the girls' garden work can be gotten,
and should be gotten, and, I am glad to say, in schools
like these I have just described, are gotten the very
best kind of lessons in language, writing, reading, spelling, geography, arithmetic, geometry and botany, as
well as lessons in industry, in keen observation, in judgment, in patience, in will-power, in that purposeful work
which goes to mold into efficient citizenship the boypower and the girl-power now going to waste in most of
our country communities—in that purposeful work which
spells character—the only thing on God's earth that is
worth living for, the only thing on earth worth dying
for, and the only thing we can and must carry into the
presence of that great Maker whom all of us are to meet.
Gentlemen, I ask you in all seriousness, why is it that
such work as this is frowned upon by so many of our
educators? Why is it that the patrons of the schools, or
at least the leading ones of our communities, do not rise
up and demand that much of the dead stuff the children
are now required to learn at school be cut out of the
course of study and courses of study be inaugurated
which, while they give the very best mental and moral
training, can at the same time be applied immediately to
making a living in the everyday life of the everyday
community in which the average everyday child, when
he grows up, is to live either as a poor citizen or as a
good citizen?
If I had the time I could mention many, many instances just like the one I have mentioned about the
two. very rural counties. At present this work is being
done only in spots; it should be universally done. And
one of the best things about it is that It takes more
effort than it does money; it is a matter not so much
of finance as of attitude. It does not need an elaborate
equpment, but it does need a 'consecrated purpose and a
profound belief that such work is education of the very
best sort—the sort that makes good citizens.
And demonstration work of this kind, linked up with
the public schools and made a vital part of the course
of study and of the school programme, is not only the
very best of education, but it can start at nowhere with
nothing and get somewhere with something. Yes, the
best thing about it Is that it is a method by whiCh it
can reach the very poorest adult, or boy, or girl in the
community. It does not require on the part of the adult

BANKING SECTION.
farmer, or of the boy or girl, any elaborate equipment, any impossible sum Of money. It requires nothing in the world but a little piece of land for farm or
garden work, and not even that much for the indoor
work. Manual training can be started with a boy, a
broom-handle and a knife. And it is a fact that when
we find a method by which the very poorest and most
needy person in a community can improve himself or
herself, that method can reach equally well every other
citizen in the community, rich or poor. The demonstration method comes nearer than anything else I know to
enabling men and women, boys and girls to lift themselves by their own boot-straps.
Schools such as I have described are almost universal
in Denmark and in Switzerland. Why, if as many as
six people, young or old, in Switzerland, in some of their
cantons, apply to the school authorities for some one to
teach them how they may learn more about their particular work, a practical teacher is provided. They take
a very common-sense view that whatever training will
cause those in a community, in any line of industry, to
turn out a better product, makes for better citizenship,
and so they provide teachers for such purposes. That
country, therefore, is one in which the citizens are almost universally efficient, in which the citizens are lawabiding and are much above the average as producers;
in which no work that is honest is looked down upon unless it be unworthily or inefficiently done.
The same may be said of Denmark, which by educating the producer rose from utter prostration to become one of the wealthiest countries in the world; and
she has done it through her schools. Denmark laughs
at the United States and at our boastfulness. She has
long since gone over from the sale of cereals to the production of butter, eggs, bacon, meat, etc. She has ceased
to sell raw materials, and is rich because she sells the
finished product. In thirty years, solely by educating
the producer, the value of live stock in that little country has been increased by $50,000,000, and this does not
count the enormously increased value of farm buildings, of up-to-date machinery, or the value of the 1,200
dairies and the co-operative bacon factories that have
been erected by the farmers. Thirty-four years ago
Denmark exported horses, cattle, butter, eggs and meat
to the value of $19,000,000 a year; to-day $120,000,000 a
year. The people of Denmark are perfectly content, and,
in fact, glad to continue buying corn from the United
States to feed their stock, so long as they can continue
selling butter, bacon, eggs and other specialties to this
and other countries. The State of Virginia, my friends,
is nearly three times as large as Denmark. How long
will we be content in the United States with a school
system that is almost universally bookish; that takes its
course of study from medieval tradition; that in large
measure serves to wean our young people away from the
soil?
I have not time to consider the education of the socalled consumer as differentiated from the actual producer. The truth is, everybody is a eonsumer, and
everybody should be a producer of something that is useful, because desired or needed by some one else. The
same principle of education, however, should be made
applicable everywhere. Suppose we call the man who
works on the land a producer, and the man who works
in a factory or in a mercantile establishment a consumer. The same principles of education—not the same
education, as now—should apply to both. At present
we are applying the same education, not the same principles of education. The man who works in the factory
or in the shops should have an education that is adapted
to his needs as an artisan.
We might take almost any city in the United States
as an illustration. It is probably true that at least 98
per cent. of the people of our cities have to work for their
living, and that 98 per cent, of their children will have to

115

do likewise; and yet the course of study is of an academic sort that has not had in view these facts. There
should be in our cities, as well as in every town and
every community, systems of schools by means of which
the children, the young men and women, and the old men
and women, if they desire it, may not only learn to
read and write and figure, as now, but may also learn
to improve and perfect themselves in whatever line of
work they may choose, or have already chosen, for
making a living. I say to you men who deal in money
that while it will cost more in the gross amount to have
a school system of this kind, it will not cost anything
like so much as is generally believed; and, I say to you
further, and without fear of intelligent contradiction,
that the efficiency of our citizenship in production in
every line will become so much greater that with each
succeeding year it will be easier to appropriate increasing amounts for such education. It has been proven
mathematically that where the greatest amounts have
been spent in educating the producer, the average productive capacity of such producer is in exactly the same
ratio greater than where this is not done. Who questions the cost if the product pays a good interest on
that cost? Here we are not dealing in uncertain futures, but in futures that are ha certain in their returns
as anything can be.
I have not prepared this speech simply to try to entertain this distinguished body of men for a short hour_
I am endeavoring as best I may, with all the earnestness
that I possess, to get the bankers of America behind this
matter of educating the producer; behind this matter of
insisting that our public school system shall be made to
adapt itself to the needs of each individual community,
whatever those needs may be; to insist on a saner training; to determine that in every community bankers' associations will encourage our demonstration work in its
application to men and women, boys and girls.
The agricultural and mechanical colleges should determine that a very large percentage of our boys and
girls in country districts, villages, towns and cities will
be enrolled in clubs that will give an outlet to their
energies, put a purpose in their hearts and cause them
to become capable of independent living by efficient
production on the land. There should be organized in
the various country communities "Pure Bred Sire
Leagues," in order that live stock of every kind may
be bred up. God never made a country that could prosper permanently without live stock. That fact should
be preached from every platform.
It should be the purpose of the agricultural college
through demonstration methods to give practical advice
and instruction and help to every man and woman, boy
and girl in their States who make a living on or out of
the land. We ask your aid, your sympathy and your cooperation.
Especially at this time, when we are on the verge of
rural credit banks of one form or another, your Association can be of the greatest assistance. The farmer
needs guidance. If he gets the opportunity to borrow on
easy terms so as to continue elbow-farming instead of
brain-farming, the banks will be a curse to him and not
a blessing. If he wishes to borrow money, his borrowed
capital should be expended intelligently in order to produce capital, interest and surplus. By co-operating
with the demonstration and extension work which is
now in the hands of the agricultural colleges, your Association can cause our farming communities to blossom
like the rose. Your returns in helping to educate the
producer will be enormous. No other single force can
wield a greater power for good—for economic prosperity
—than your Association.
One other thing and I am done
The kind of education for which I plead is, in my
judgment, fundamental, but let me bring to your attention another thing that is intimately and irrevocably

116

BANKERS' CONVENTION.

connected with the education of the producer: The
training of Johnny and his father, and of Mary and her
mother, to double or quadruple production on the farm
and in the garden, will be of little benefit to them if
they are to be the,victims of exploitation by the land
speculator, whose sole purpose in holding land is to
make money out of the labors and the increased efficiency of Johnny and his father, and of Mary and her
mother.
There is not a State in the Union, so far as I know,
that protects Johnny and Mary and their parents from
exploitation by land owners who are not land users,
and there is not a State in the Union that does not tax
the industry of these parents and their children instead
of taxing the land so as to force it into use.
In the last analysis the man who owns the land, owns
the man on the land. Land area is not increasing, but
population is increasing very rapidly, and what will it
profit a State, or what will it profit Johnny and Mary, to
train them to get more products from an acre of their
own if they are to be fined for every new evidence of
their industry and efficiency? What will it profit them
to get more products from an acre of which they are not
the owners, if the owner of that acre at once raises the
price or the rent so as to realize a fat interest on
Johnny's and Mary's efficiency?
On account of the fact that land area is not increasing, and that the population is increasing, this question
is becoming acute. It has more to do to-day with the
increased cost of living than any other one thing.
There are tens of thousands of Johnnies and Marys
In this country who desire to make a living out of the
land. They are being taught by demonstration methods how to double and quadruple the present yield. They
will seek—they are already seeking—land on which to
make a living by their increased efficiency; but most of
these tens of thousands of Johnnies and Marys do not
own any land, and Uncle Sam has no more to give them.
How are they to get it? Notwithstanding the fact that
there are tens of millions of acres of good arable land
In this country that are not used, the price of land is

increasing at a rate that is alarming. We have, then,
tens of millions of acres of unusued land without tillers, and tens of thousands of would-be tillers 'without
land. These acres are held off the market until the man
with the price comes along.
It is getting increasingly difficult, my business friends,
to explain to Johnny and Mary why the man who uses
the land is heavily taxed on his industry, in the shape
of horses, cows, hogs, barns, farm machinery, residence,
etc., while the man who owns land, but does not use it,
is lightly taxed on his idleness.
America has been called the land of opportunities.
There is no opportunity except in land, and this has been
the land of opportunity only because in the past it has
given every seeker an opportunity on the land.
Thousands of the boys and girls about whom I am
talking, and for whom I plead, are the forgotten sons
and daughters of the fathers and mothers long since
forgotten by this great commonwealth. All they need is
a chance. We are trying to hold out a helping hand to
them.
An agricultural expert said to me recently that he regarded the demonstration work in the South as a
"joke," and when I asked him why he thought so, he
replied: "Because you have some agents who are not
scientific experts." My reply to him, and to all other
Pharisees of this type, is that the average farmer needs
help now—not ten or twenty years from now, and that
we should help him now with whatever agents we can
command, striving all the time to prepare and find better ones. To me it is not a "joke," but a tragedy, when
I go up and down this State and see our farm lands
seamed and scarred with gullies; when I see the soils
that have been in the making for centuries washing
away to the rivers and to the sea; when I see lands
left all the winter exposed like wounds to the elements;
when I see men farming with their elbows instead of
with their brains. It is tragedy—not a "joke"—and
they need our help right now. And we need for our
economic salvation to help them right now.
Shall we do it?

Committee and Officers' Reports
Annual Report of the General Secretary.

•

NEW YORK CITY, October 5, 1914.
The American Bankers Association:
GENTLEMEN: I respectfully submit my report as General Secretary of the American Bankers Association for the fiscal year
ending August 31, 1914.
Referring to the general affairs of the Association during the
past year, I call your attention to the detailed information
contained in the various reports submitted by other officers of
our Association, its Sections and Committees and which have
already been made or will be made during the sessions of our
Convention.
It is my purpose only to summarize this work in the briefest
manner; dealing more fully with matters appertaining directly
to my administration of the general business of the Association
and its finances, as I am called upon to act.
EXECUTIVE COUNCIL.
With each year there comes a large increase in the membership of the Association and increased attendance at our Annual
Conventions, so that it becomes more and more apparent that
the Executive Council must transact the business of the Association, as its deliberative body.
This organization, as now constituted with its standing committees (as provided for under the new Constitution) is an admirable body for the transaction of the business of the parent
organization.
The Spring Meeting of the Executive Council was held, at
the Homestead Hotel, Hot Springs, Va., on May 1 and 2, 1914.
Almost the entire membership of the Council was present, only
a few being unavoidably absent. It was strictly a business session and matters presented for attention were given careful
consideration. The meeting was successful in every respect.
The new Council, which will organize at the close of this
Convention, will be composed as follows: One year class-26;
-30; Ex-Officio--11;
-25; Three year class
Two year class
Total, 92.
During the past year five States have increased their membership so as to entitle them to an additional member on the
Executive Council. These States are Pennsylvania, Illinois,
Texas, North Dakota and South Dakota. The banner State for
membership is New York, with 1,003 enrolled; Pennsylvania
second, 925; Illinois third, 914.
I believe our present method of membership on the Council
to be the best and that it cannot be improved upon. All States
are represented in a fair and impartial manner, on an equitable
basis; and the plan provided for under our Constitution (by
giving this representation) retains our membership with increasing interest on the part of the various States.
SECTIONS.
The past year has been marked by unusual activity on the
part of the various Sections. With each succeeding year the
value of these Sections to our organization is more apparent.
The Executive Officers of the Sections; the Secretaries; the
Educational Director of the American Institute of Banking (Mr.
George E. Allen) ; William J. Henry, President, and P. W. Hall,
Secretary of the Secretaries Section, have all been earnest in
their efforts to make an excellent record, which I am pleased to
say they have done.
The Officers of the Trust Companz Section have given close
attention to matters in which Trust Companies are interested.
Another important event of the year was the Annual Dinner
of the Trust Company Section, which was given at the Waldorf-Astoria, on Monday, May 4, 1914. It was, like its predecessors, most successful and had the largest attendance in the
history of these functions.
The Savings Bank Section, in addition to its efficient work
in everything pertaining to the requirements of the Section,
and its members, has been very active in the "thrift" movement, in an endeavor to educate the people (through the press
of the country) in the benefits of prudence and in the opening
of savings bank accounts.
The importance of savings has been largely exemplified by
means of the motion picture movement. The idea originated in
the Savings Bank Section, whereby a series of pictures were
prepared by the Vitagraph Company; and, of course, received
a wide distribution of the reels to all parts of the world.
The Clearing House Section has been particularly active in
its field of operations. Its membership has increased and valuable statistics have been received in its office; and the effort
to create uniformity among clearing houses (especially in the
larger cities) has received a great impetus. Clearing House examiners for cities have also been advocated with good results.
The Clearing House Section has given valuable aid to the
Government in the establishment of its Federal Reserve Bank

Banking Section.

and Regional Banks and particularly in the field of clearing
house operations and in the detail of clearing house work and
exchange.
The Annual Convention of the American Institute of Banking was held in the City of Dallas, Texas, on September 22 to
24, 1914. It is the aim of the Institute to progress, and with
each Convention there is an apparent increase in interest and
larger attendance. Those who were so fortunate as to attend
the convention this year are lavish in their expression of appreciation of the hospitality of Dallas and Texas and in the
great success of the convention from every standpoint.
The Institute does not lose sight of the fact that it was established for educational purposes; that the financial and moral
support of the American Bankers Association was based and
is based on the educational feature; and I am glad to report
that the Institute is yearly approaching nearer to this ideal.
The movement of the Institute to establish a Health Commission whereby bank clerks, either from old age, poor health or
overwork can be benefited in health resorts, at a minimum
charge, is a most commendable one. This action of the Institute has the approval of that body, and, in my opinion, should
receive the hearty support of the American Bankers Association, as well as banks and bankers of the country at large.
The Secretaries Section has, on all occasions, co-operated
with our Association in the important work in which we are
engaged. The State Secretaries are loyal to the American
Bankers Association and their affiliation with us as a Section
is most important.
To Secretaries P. S. Babcock, E. G. McWilliam, 0. Howard
Wolfe, Educational Director George E. Allen and to William J.
Henry and P. W. Hall of the Secretaries Section I wish to extend thanks for their very hearty and wholesome co-operation
during the past year and to congratulate them, each individually, on the success of the work in which they are engaged.
JOURNAL-BULLETIN.
The JOURNAL-BULLETIN, combining as it does the JOURNAL
of this Association as originally published and the BULLETIN
of the American Institute of Banking as originally published, is
as a combination much more valuable, giving members of our
Association the benefit of the activities of the Institute and in
turn furnishing the members of the Institute with full information regarding the American Bankers Association. The circulation of the JOURNAL-BULLETIN is now about 30,000 copies each
month.
.
As to how much value is placed on this publication, we have
only to refer to the correspondence in these offices and to expressions received from members in all parts of the country,
when I am visiting the various States, regarding the value of
the Legal Department and the Protective Department, which
can only benefit our members through a publicationsof this kind.
I do not believe that at the present time the Association
should go into the field of publishing a financial magazine, give
items regarding banks and bankers, general bank news, personal
notices, carry advertising or announce change in titles.
I do believe, however, that the JOURNAL-BULLETIN should be
a medium for carrying to our members all information regarding the activities of our Association and carefully prepared articles on banks and banking, and the various ramifications of the
Federal Reserve Act. All this is information which bankers
seek and desire; and they expect it to be furnished by our Association.
As there has appeared from time to time in some three or
four of the financial Journals of the United States criticism of
our JOURNAL-BULLETIN and of its methods, making the statement that the only publication ever authorized as the official
organ of our Association was a Bulletin of News, therefore I
quote the resolution adopted at the Spring Meeting of the Executive Council, held in Lakewood, New Jersey, in May, 1908:
"Resolved That the Secretary be and he Is hereby instructed to publish a
monthly journal, the same to be devoted to the interests of and for the information of the members of the Association."
The statement has also been made and circulated through a
few of the financial papers that the JOURNAL-BULLETIN costs
our Association $25,000.00 a year. For the past fiscal year the
bills are all paid and the expense, as it appears in our financial
statement, is $15,801.27.
LEGAL DEPARTMENT.
The value of this Department is emphasized yearly by the
increased calls upon General Counsel Paton, who has so efficiently filled the position which he has held since 1908. Mr.
Paton's report will show that the past year has probably been
the most active since the establishment of the Department.
This is especially true as applied to the requests from our vast
membership for legal opinions.

BANKERS' CONVENTION.

118

Mr. Paton's report will cover very fully the work of his
office and some of the important matters which have come before him during the fiscal year. Representing the Association,
as he does, with particular duties to perform, both in consultation and in the preparation of briefs and various other documents, his work for the Federal Legislative, Law and Insurance
Committees has been most valuable. Mr. Paton needs and
should have another assistant and he also requires more office
space in order to adequately perform the vast amount of worn
which now comes before him.
STATE ASSOCIATIONS.
There are now 48 State Bankers Associations; and, as reported a year ago, there is only one State without a State Bankers Association. During the past year I have endeavored to
create an interest in Rhode Island, among bankers, looking to
the organization of a State Association; and I have been advised
within the past thirty days that a committee is now appointed
and that they hope, following our Convention, an Association
will be organized. This will complete the circuit and give us an
Association in every State and the District of Columbia.
Coming in contact, as I do by correspondence and also in person, with the State Secretaries and State Associations, I can
see annually an increase in the growth of these various organizations, as well as a great increase in their activities. And
while some associations naturally (by reason of their size) are
more successful and progressive than others, there is no State
Bankers Association in the Union which can be called even
mediocre.
As in the past, your General Secretary has endeavored, as
far as practicable, to visit State Associations, our members in
the various States and some kindred organizations. Where not
possible to visit conventions, I have attended some State Association banquets, group banquets and American Institute of
Banking functions and banquets.
In October of last year I visited Oklahoma, attending the
International Dry Farming Congress and there addressing the
convention on the subject of "Why the Bankers Are Working
with the Farmer." This talk was given wide publicity in the
farmers' papers of the country, and, as our Association is engaged in the agricultural movement. I believe it was not with•
out benefit.
I took occasion, while on that trip, to visit a large number
of banks in Oklahoma.
On May 15 last I started on a Western trip which lasted six
weeks, visiting the State Conventions of Missouri, Kansas,
California, Washington, Idaho. Utah and Colorado. I was invited and was on the programme at each of these State Conventions, thereby coming in contact with several thousand bankers—for these conventions were very largely attended and most
successful, and abounded in the hospitality bestowed upon their
guests.
COMMITTEES.
The Committees of the Association, when called upon, have
been most active in their participation in the work of our Association.
The Insurance Committee, having its own office in Richmond,
with a Secretary who devotes his time to the interests of the
Committee, has had an active year; obtained valuable information; and has been able to protect the interests of members of
our Association in connection with the insurance problem.
There has been an increased demand for the copyrighted policies
issued by our organization.
The Committees on Law and on Federal Legislation will be
covered in the report of our General Counsel.
I am indebted to the Administrative Committee for its active
participation in the affairs of the Association; thus enabling me
the better and more intelligently to administer the multifarious
details of our organization.
The Finance Committee, as now constituted with its SubCommittees, is in better position to analyze the financial features of the Association and intelligently report the same to
our Council than ever before; and the special committees appointed at the Hot Springs meeting are prepared to report
their findings at this meeting.
CURRENCY COMMISSION.
There seems to have been little call for activity on the part
of the Currency Commission during the past year. At the time
of our last Convention, banking and currency legislation was
practically completed, and, in the final days of Congress, the
Federal Reserve Act was passed on December 23, 1913. This
legislation received the personal attention of the members of
the Currency Commission. I think the provision of the constitution in continuing the Currency Commission indefinitely was
most wise. The Commission is composed of experts, men who
have been students of banking and finance, and have been
active on this Commission for many years. It is among the possibilities that during the coming year, with certain proposed
amendments to the Federal Reserve Act, the services of this
Commission may be required.

AGRICULTURAL COMMISSION.
The creation of the Agricultural Commission at Boston grew
out of the activities of the Committee on Agricultural and
Financial Development and Education, which ceased to exist at
the Boston Convention. My trip through the Western States,
abave alluded to, convinced me that the agricultural activities
on the part of the Association's banks and bankers are being
heartily supported in every section, while the agricultural movement—organized as it was by a special committee of the general Association—should be continued in some form, either
through a Committee of the Association, or a Committee of the
Executive Council.
PROTECTIVE COMMITTEE.
The Protective Committee is now a standing committee composed of members of our Executive Council. Of necessity,
the names of these committeemen must remain secret; consequently, they cannot receive, as individuals, the commendation
to which they are entitled for their supervision of the Protective Department and the time they give to consideration of this
work of our Association.
The report of the Protective Committee and the report of
Manager Gammon to our Executive Council give in detail
what has been accomplished during the past year. These reports, with the full report of the William J. Burns International Detective Agency (which is available to members of the
Association), should receive careful reading and consideration.
It is not expected that any body of men or officials can perform
important work without receiving some criticism. I am glad
to say. however, and our records will prove the assertion, that
the complaints against the Protective Department—managed by
Mr. Gammon and the Burns Agency—are very small in number;
whereas, on the other hand, this work receives from very many
sources unqualified approval.
LIBRARY.
A report of the Library and Reference Department is made
by Miss Marian R. Glenn, Librarian, and should command careful study. The growth of the Library and its utility and usefulness has proven the wisdom of establishing this Department.
In fact, I think its success has been phenomenal, and without
a large expenditure on the part of our Association. We are
indebted to many organizations, libraries, bankers and individuals for contributions of books and pamphlets and large quantities of magazines and newspapers whereby we have been able
to increase the efficiency of our reference service. The success
of the Library has involved 'painstaking research, enthusiasm
and study on the part of our Librarian.
THE NEW CONSTITUTION.

•

The new Constitution adopted at Boston was a model in its
way. Carefully prepared by the late Col. Robert E. James and
his Committee, it took the place of a patchwork which had its
inception in the organization of the Association in 1875. The
general working of the Association during the past year under
the new Constitution has been efficient and satisfactory. Any
great work, however, like the preparation of a constitution and
practicing under it. will not be perfect. It is only practical
experience which can remedy the complications as they arise;
and you will be called upon to act on several amendments
which are now proposed. None of these amendments are serious
in nature but refer to details which have developed during the
year and which appear to necessitate a change.
THE DEPARTMENT OF PUBLIC RELATIONS.
For two years it has .been apparent that the Association
should have a publicity department. The man selected for
this position should have had broad experience as a newspaper
man; a large acquaintance with prominent men of affairs, the
press of the country and correspondents, and a knowledge of
banking and finance.
The developments of the past few months have emphasized
the importance of the work which might be done by a capable
representative, in order that bankers of the country (through
the press) might receive fuller information regarding new laws,
and that business men should be made more fully acquainted
with the functions of a bank. It is also probable that a man
of this caliber would handle to better advantage the JOURNALBULLETIN of our Association.
The Administrative Committee unanimously decided that this
feature of the Association's activities should receive immediate
attention.
OUR FINANCES.
The report of the Treasurer will show a cash balance on
hand of $20,152.70, as against a balance of $5,479.29 a year
ago. A special effort was made to secure all outstanding bills
of the Association, and all bills were paid at the end of the
fiscal year, August 31, 1914. There is no Committee nor Section that has a debit balance. The statements which are published make an unusually good showing; in fact, the general

119

BANKING SECTION.
condition of the finances of the Association has not been in as
prosperous shape at any period during the past seven years.
On September 1st, which is the period for the payment of dues
in accordance with our Constitution, this Office prepared for
the Treasurer drafts on our members aggregating $230,030.00
for dues for the ensuing year, which the Treasurer then sent
out. There has been some uncertainty in my mind as to just
how prompt and how fully these dues would be paid, owing to
the general conditions and the European War. The receipts of
the Treasurer for the month of September were $195,235.00.
The receipts from drafts for the month of September, 1913,
were $196,500.00 and the 1913 drafts were sent out several
days earlier than in 1914. This to me is a favorable showing
-developing as it does
and at the same time very gratifying
the loyalty of our membership.

ROUTINE WORK.
During the fiscal year just ended, August 31, 1914, we sent
out from the General Offices, not including Sections, departments and committees, more than 536,000 letters, circular letters, Proceedings, JOURNAL-BULLETINS, etc. The following statement shows the volume of mail and express matter in detail:

15,387
Letters
72,847
Circular Letters
such as typewritten lists.
First-class mall other than letters,
printed matter, etc
30.483

SECOND, THIRD AND FOURTH CLASS MAIL MATTER.
353,737
14,710
1,163
15,583
1,026
1,712
15,239 403, 171

Total Mail Matter
Express Packages

521.868
14.514

2,813
3.424
3,915
4,500
5.504
6,354
7,065
7.563
7,677
8,383
9,251
9.803
10,682
11,405
12.072
13,323
14,100
14,720

Gross
Gain.

Net
Gain

982
783
741
819
1,313
1,159
1.139
1,120
1.152
1,043
1.302
1.243
1,639
1,504
1,971
2.041
1 521
1,514

611
535
530
585
1,113
973
826
620
114
706
868
552

879
723
667
1,251
777
620

At the close of our fiscal year, August 31, 1913, the membership of our Association numbered 14,100. At the close of the
current fiscal year, August 31, 1914, our membership was 14,720,
an increase of 620. The following tables will show these facts
in detail:
August 30, 1913
Erased from the rolls through failure, liquidation. consolidation and
withdrawal. December 1. 1913

14.100

Membership
August 31, 1914, New members Joined during the year
Regained members (secured from the above)

13,206
1.004
510

August 31, 1914. Membership

894

1.514
14,720
620

164
220

384
1.004

It is to be observed that the list of delinquents is exceedingly
small, considering our large membership. The aggregate capital,
surplus and deposits of our membership amount in round numbers to about $15,000,000,000.
The membership and resources of the Association have increased as follows:

•

Interest on Bonds and Corporate Stock
Interest on Bank Balances (estimated)
Estimated Annual Dues for fiscal year ending August 31, 1915

Annual Dues,
$11,606.00
10.940.00
12,975.00
127.750.00
137,600.00
150,795.00
162,507.00
175,352.00
188.934.00
198,530.00
213,752.50
229,324.48
239,406.00

31, 1914.)
Canada
Cuba
Hawati
Isle of Plnes
Porto Rico
Mexico
Philippine Islands

45
24
18
2
4
20

Total

674

MEMBERSHIP.
DIVISION OF BANKS IN ASSOCIATION, AUGUST 31, 1914.

5,298

63.074
MEMBERSHIP.

Making the actual gain in new members

13
63
40
27
66
66
46
77
79
83

$248,436.00

35,329
27,745

A net increase in the fiscal year of
A net loss for the year in failures, consolidations, etc......
A net loss' for the year In delinquents

Alaska
Arizona
Delaware
Nevada
New Hampshire
New Mexico
Rhode Island
Utah
Vermont
Wyoming

$4.730.00
2.300.00
239.406.00

SECTIONS.
Total First-Class Mall Matter
Total Second-Class Mall Matter

1897
1898
1899
1900
1901
1902
1903
1904
1905
1906
1907
1908
1909
1910
1911
1912
1913
1914

Gross Loss by Net Loss by
Failures.
Failures, Merger, Delhi- Merger, Delhiquents, dm
quents..Sc.
371
248
211
234
200
186
313
500
1.038
337
...
434
...
691
374
760
781
298
405
1,304
790
330
744
359
894
384

State or Territory. Nat'l.
Alabama
57
Alaska.
2
Arizona
12
43
Arkansas.
California
199
Colorado
108
70
Connecticut
21
Delaware
13
District of Columbia.
51
Florida
85
Georgia
45
Idaho
315
Illinois
149
Indiana
186
Iowa
172
Kansas
71
Kentucky
32
Louisiana
55
Maine
81
Maryland
155
Massachusetts
85
Michigan
172
Minnesota
32
Mississippi
89
Missouri
51
Montana
145
Nebraska
10
Nevada
46
New Hampshire
178
New Jersey
36
New Mexico
New York
397
57
North Carolina
102
North Dakota
Ohio
229
Oklahoma
186
Oregon
69
Pennsylvania
563
Rhode Island
17
South Carolina
27
South Dakota
83
Tennessee
69
Texas
274
Utah
22
Vermont
43
Virginia
92
Washington
70
West Virginia
80
Wisconsin
114
Wyoming
32
Canada
0
Cuba
1
4
Hawaii
Pines
1
Isle of Pin
0
Porto Rico
Mexico
0
Philippine Islands.....
0

536.382

Grand Total

Making total income, year ending August 31, 1915.

Membership.

(As of August

116,697

Paid Membership.
September 1, 1875 1,600
September 1. 1885 1.395
September I, 1895 1,570
7,677
August 31, 1905
8.383
August 31. 1906
9,251
August 31, 1907
9,803
August 31, 1908
10.682
August 31. 1909
11,405
August 31, 1910
12,072
August 31, 1911
13,323
August 31, 1912
14,100
August 31, 1913
14,720 (estimated)
August 31, 1914

Year.

MEMBERSHIP OF STATES AND TERRITORIES HAVING LESS THAN
100 MEMBERS.

FIRST-CLASS MAIL MATTER.

Journal-Bulletins, including those of A. I. B
Codes
Signs
Lists of Members in Pamphlet Form
Packages
Postal Cards.
Pamphlets

MEMBERSHIP BY YEARS.

State. Private. Trust Co.'s.Sav.Bks. Total.
9
174
23
2
83
o
13
o
1
10
63
32
0
18
1
2
236
159
2
30
34
79
606
286
8
8
228
18
83
9
48
174
11
8
37
40
15
2
1
1
45
3
6
8
15
4
188
5
11
117
14
418
19
292
8
1
130
9
74
1
914
37
267
222
73
50
3
391
40
149
577
185
52
13
141
588
4
5
2
405
175
4
22
1
77
189
22
5
1
129
109
34
20
0
0
187
27
21
26
32
342
103
51
31
2
442
156
45
. 8
148
436
6
4
245
9
2
173
0
13
126
529
32
40
23
345
211
2
9
19
130
379
2
7
4
221
27
0
.1
0
16
66
6
13
1
0
18
317
93
3
25
66
1
1
7
21
1. 3
00
181
90
90
172
254
6
30
1
87
392
0
3
3
194
582
108
52
66
127
391
1
10
0
194
6
178
12
79
12
35
925
55
183
89
48
2
19
7
1
172
10
16
118
1
6
301
202
3
7
8
261
127
1
56
1
502
150
27
50
4
4
8
77
39
79
0
0
22
14
108
12
14
9
235
21
26
187
7
311
85
2
16
5
188
214
2
10
18
358
45
1
5
0
83
43
2
0
0
45
19
3
1
0
24
6
2
4
0
16
1
0
0
0
2
3
1
0
0
4
19
1
0
0
20
3
0
0
0
3
6,025

921

1,324

1,152

14,720

120

BANKERS' CONVENTION.

IN MEMORIAM.
A grateful Association shows its appreciation of the services
of its officials, past and present, whether in life or when these
officials have passed to the beyond.
It seems appropriate to call your attention to the death of
Col. Robert E. James, a Member of our Executive Council,
Chairman of important Committees, and whose last great work
for the Association was the compilation of our new Constitution. Colonel James died at his home in Easton, Pennsylvania,
November 10, 1913.
In life he was beloved, in death mourned by the large circle
of his friends. '
P. C. Kauffman, of Tacoma, Washington, died April 8, 1914.
Mr. Kauffman was Treasurer of the American Bankers Association 1908-1909; he was also a Member of the Executive Council
and served three years from 1901. At the time of his death he
was a Member of the Executive Committee of the Trust Company Section, and had been Secretary of the Washington Bankers• Association since 1901.
Mr. Kauffman was always efficient in the performance of the
duties assigned to him and served faithfully on committee appointments, as well as in other official positions. His loss was
mourned by his many friends in all parts of the United States.
APPRECIATION.
The General Secretary again takes great pleasure in expressing his appreciation of the valuable assistance and courtesy extended to him by the Executive Council, Committees, Sections
and officers of the Association. And he is grateful to the general membership of the Association for its loyal support, friendly letters and. warm welcome when brought in personal contact
with the bankers throughout the country.
My relations with President Reynolds have been most cordial
and congenial; his keen interest in the affairs of the Association and his valuable consideration has been a great help to me
in the execution of the duties I am called upon to perform.
And to Treasurer Hoopes, Assistant Secretary Fitzwilson and
the employees of this Association in the General Offices I wish
to express my sincere assurance of appreciation.
RICHMOND.
The Convention of our Association now being held in Richmond is the fortieth in the history of our organization, and
the second Convention to be held in the City of Richmond—our
Twenty-sixth Convention having met here in 1900.
The Convention of 1900 was a pronounced success with
Southern hospitality unbounded. The annals of the social features of the Convention call to mind the entertainment given
by Mr. John P. Branch, who to-day is still active despite his
advanced years, and now the dean of the profession in Richmond, if not in the State of Virginia, and who will, with all
bankers of Richmond, extend the warm band of welcome.
The Association in those days numbered 4,500 members and
the assets of its membership were six and a half billion dollars.
The annual dues of the Association amounted to $61,200.00.
At this Convention there was a registration of about 1,200.
The Convention was presided over by Walker Hill, of St. Louis,
Missouri, and Alvah Trowbridge (deceased), of New York, was
elected President. Of those in attendance at that time many
have answered the roll call to the great beyond, some of whom
have held high position in the American Bankers Association.
No doubt the most important event of the Richmond Convention of 1900 was the report of the Committee on Education, Mr.
W. C. Cornwell, Chairman, whereby the Convention unanimously approved of an Institute for bank clerks, which is now
the American Institute of Banking and one of the most valuable
and progressive adjuncts of our Association.
In this fortieth year of our organization and the establishment of the Federal Reserve System, with all that it means to
the banking interests of the country, and having in mind the
strenuous campaign which has been waged by the American
Bankers Association for many years, to bring about new laws
which would give to us a banking system in keeping with the
wealth and growth of our great country, and which has not had
any banking and currency legislation of any importance for
fifty years, it does not seem inappropriate at this time to refer
to some of the predecessors of the American Bankers Association in organization.
On April 11, 1838, and following days, a meeting of bankers
was held in the city of New York. There were present 143 delegates, representing 18 States. This conference lasted several
days. You will note that this was shortly after the panic of
1837 and was called for the purpose of securing co-operation
between banks and the Government to bring about specie payments and to restore the currency to a sound condition.
The records show also, that one of the objects of the conference was to overcome, if possible, the statements emanating
from the public press that the Government and Treasury Department were showing a hostile disposition towards the banks;
and to retard, if not prevent, their resumption of specie payments.
The records further show that Virginia was represented by
John Brockenbrough, Hugh Mercer, William 11. MacFarland and
Henry M. Brent. This information is gleaned from the Finan-

cial Register of the United States, which is one of the valuable
volumes in the library of our Association.
We are now convened in the City of Richmond, one of the
live, energetic and progressive cities of a United Union, noted
in history as one of the most interesting cities in the United
States; embodying the early struggles of the colonists; surrounded by important points of interest in the Revolutionary
War; and on the very site of the conflict of the Civil War;
near by the legendary scene of the romance of Pocahontas and
John Smith; still possessing old St. John's Church, where
Patrick Henry made his famous oration and that immortal
declaration, "Give me liberty or give me death." Noted for
Jamestown, the first English settlement in America.
Richmond is beautifully located on the James River, and,
like Rome in ancient times, on seven hills, with many beautiful parks graced by artistic monuments marking great men and
events.
I have received from the bankers of Richmond, composing
the local committees, the most hearty co-operation in the arrangement of details, and, without minimizing the superb hospitality of other cities by whom we have heretofore been entertained, I know we will enjoy to the fullest measure the true
Southern hospitality and every attention of the people to make
our visit most enjoyable.
To the Clearing House Association of Richmond and its associated banks, I know I will express the wishes of our members
when I say to you—we thank you for your unremitting labors
and kindness in our behalf.
Respectfully submitted,
FREDERICK E. FARNSWORTH,
General Secretary.
Report of the Treasurer.
GALVESTON, TEXAS, October 2, 1914.
To THE MEMBERS OF THE EXECUTIVE COUNCIL AND THE AMERICAN BANKERS ASSOCIATION.
MIL PRESIDENT: I have the honor to submit herewith my
first annual report as Treasurer of this Association, showing
the financial conditions of the organization at the end of the
fiscal year, August 31, 1914; and, while of necessity this report
is somewhat lengthy and contains much in detail, I feel that
this detailed information is of so much interest to our members
generally that I trust it will be examined by them closely and
it will give them a much better knowledge of the work that is
being done and of the excellent results obtained.
Especially gratifying is the fact that the cash on hand at
the end of the present fiscal year is approximately $15,000
larger than has been shown since 1907. This is shown despite
the fact that there has been required decidedly greater expenditure in rendering that efficient service which has been one of
the means of bringing the Association its vast growth in membership. To my mind this reflects great credit upon the active
officers of our organization and to the various committees, to
whom the detail work has been entrusted, and I feel sure that
our membership will join with me in extending to each and every
one of them our thanks for their efficient services.
In accordance with what has been the custom for years, the
Association has kept its surplus funds invested in high grade
securities. These are in the custody of the Bankers Trust Company, New York, under control of the Executive Council. The
interest on these securities has been collected by the Trust Company regularly, remitted to me and credited to the Association's
account. A list of the securities held are as follows:
$12,000 Chicago, Burlington & Quincy Joint 4's of 1921.
$30,000 Atchison. Topeka & Santa Fe 4% Bonds of 1995.
850,000 Chicago, Burlington & Quincy. Illinois Division,4% Bonds of 1949
$30,000 New York City Registered Corporation Stock 334%, due 1940.
I wish it were possible for me to adequately express my
sincere appreciation of the never failing and hearty co-operation
and assistance that has been given me by the various officers
of the Association, and especially do I wish to compliment, in
highest terms, the systematic manner in which the many details are handled in the General Secretary's office.
One who has never handled the Treasurer's office can hardly
appreciate what valuable and cheerful service this Department
of the Association renders.
In August, 1914, the Treasurer received from the Secretary's
office 14,267 drafts on account of the dues for the current year.
These drafts aggregated $230,030.00. In line with the provisions of our Constitution, these were all dated September 1,
1914, and mailed to various members on that day for collections
and returns, and at this writing I am pleased to advise that all
but a small percentage have been collected.
Respectfully submitted,
J. W. HOOFER,
Treasurer,

Annual Report of General Counsel, Thomas B. Paton.
A broad survey of the work of the General Counsel during
the current year would include activities before Congressional
committees and services in Washington as the active agent and
attorney for the Committee on Federal Legislation; work under

BANKING SECTION.
the auspices of the Committee on Law an promotion of the State
legislation reconlmended by the Association; acting as legal
adviser and draftsman in various matters which have arisen
in connection with the affairs of the Sections and of the Protective, Insurance and other Committees and of officers of the
Association; a large and varied opinion and information-giving
correspondence with the general membership; the making of a
number of addresses in connection with the Association work
and a study of the general situation, especially with reference
to the need of reform of the laws relating to banking and commercial subjects, with the view of framing additional legislation which will simplify, unify and make certain the rules on
many matters of banking procedure and on many subjects
wherein the law is at present uncertain, conflicting or inadequate.
CONGRESS.
Income Tax.—On October 3, 1913, just five days prior to the
opening of our last Annual Convention, the President approved
the Federal Income Tax law, which was part of the tariff bill.
In my last annual report I referred to the efforts which bad
been made before Committees of Congress to secure modifications of the bill, while in its making. These were successful
to the extent of causing.(1) the exemptfon of mutual savings
banks, and (2) a change of phraseology so as to make it clear
that a bank was not compelled to deduct the tax at source from
interest paid on deposits; but we did not succeed in the larger
effort to eliminate entirely the provisions as to withholding at
source, nor to restrict such provisions to the mere giving of
information at source without requiring the income-payer to
become a gratuitous collecting agent for the Government. Immediately following the passage of the bill, General Counsel
was called upon from many sources to aid in its proper interpretation with respect to the duties of banks at source of income and to help solve many questions of immediate urgency
until the publication of regulations and interpretations by the
Treasury Department cleared up many doubtful questions. Various suggestions have come to the Association with reference
to testing the constitutionality of the law in the courts and
also attempting to procure its amendment, either by repeal of
the collection at source feature or by a modification of that
feature to provide solely for information at source. These
suggestions were considered by our Committee on Federal Legislation at a meeting last Spring and it was decided that the Association should not take the initiative or be identified with
any proceeding to test the constitutionality of the Act in the
courts, but that an amendment should be urged doing away
with the collection at source feature entirely or, if that could
not be attained, then the policy of the Association should be
to procure an amendment providing for information at source,
eliminating deduction and collection, and also to simplify the
provisions of the law. A number of bills have been introduced
in Congress along these lines, but it has been impossible, at
this session, to procure any attention to these measures.
Federal Reserve Act.—The Federal Reserve Act was approved December 23, 1913, and the chief function of General
Counsel has been the interpretation of various provisions of
the Act at the request of members of the Association. Reports
of the amendments which have been made to this Act have been
conveyed to members through the pages of the JOURNAL-BULLETIN.
Interlocking Bank Directorates.—In the latter part of January, in pursuance of Anti-Trust recommendations of the President, "Tentative Print Number 3" was prepared for consideration of the House Committee on Judiciary which held hearings thereon in February and March. As originally framed the
tentative bill prohibited, after two years, a person from at the
same time being director, officer or employee of two or more
national or other banks, members of the Federal Reserve System, and also prohibited a private banker and a director in
any State bank or trust company from being a director in any
national or other bank, member of a Federal Reserve bank.
These original provisions, it will be observed, were very broad
and sweeping, having no regard to size or locality of the banks
affected. Your Counsel, acting under authority of the Committee on Federal Legislation, made a number of visits to Washington in February and March and discussed and opposed these
provisions both with individual Congressmen and at the hearings, and later our entire membership was circularized and
urged to co-operate in attempting to secure a modification or
elimination of the Interlocking Directorate provisions. As a
result of the hearings the Clayton bill, H. R. 15,657, was introduced in the House on April 14, reported from the House Judiciary Committee in revised form on May 6th, passed the
House on June 5th, and was referred to the Senate Committee
on Judiciary. The bill as it passed the House eliminated mutual savings banks and its original drastic provisions were
otherwise modified as follows, though still unsatisfactory to
the banks: As to banks generally, irrespective of locality, it
prohibited (a) a person from at the same time being an officer
or director of two or more national banks where either had capital, deposits, etc., aggregating more than $2,500,000; (b) a
private banker or director in a State bank having capital, deposits, etc., aggregating more than $2,500,000 from being a di-

121

rector in a national bank. It contained, however, special provisions applicable to cities exceeding 100,000 population, of
which there are 61 in the United States, substantially to the
effect that no director or officer of a national bank could be a
private banker nor in any other bank in the same place other
than a mutual savings bank, except that he might be in not
more than one other bank or trust company, when the entire
capital of one was owned by stockholders of the other. There
was a further provision barring common officers or directors of banks and of common carriers under certain conditions.
While the bill was pending before the Senate Committee on
Judiciary, your Counsel filed a brief in behalf of the Association which contained arguments showing that the provisions
as drawn went far beyond the purpose and intent of the AntiTrust laws and would work great injury and injustice to hundreds of banks and bank officers in institutions which were
non-competitive and where there was not the slightest possibility of the existence of any such evils as the law was proposed to remedy. After pointing out the various ways the provisions would injuriously operate, the entire elimination of
such provisions was urged as being unnecessary or as an alternative that the Federal Reserve Board be given power to require resignations of officers in competitive institutions in case
any abuses from the undue control or concentration of credit
were found to exist. The brief urged that as the general tenor
of the proposed legislation was in regulation of the eligibility
or qualifications of officers or directors of national banks, if
any further provisions were necessary their most appropriate
form would be by way of amendment of the Banking Act rather
than by incorporation in an Anti-Trust bill.
On July 22 the Senate Judiciary Committee reported the bill
to the Senate, recommending the entire elimination of the provisions as to Interlocking Bank Directors. In its report the
Committee said: "A Senate amendment to this section strikes
out the entire paragraph which relates to interlocking directorates of banks and trust companies. In proposing this amendment a majority of the Committee believed that such legislation
as this more properly belongs to the domain of banking rather
than of commerce and such additional regulation of bank directorates as may be wise and just should be made by amendments to the national bank acts, and the enforcement of it
given to the Comptroller of the Currency and the Federal Reserve Board."
On September 2d the Senate passed the bill in accordance
with the recommendations of the Committee, all provisions prohibiting Interlocking Directorates of Banks being eliminated, as
well as the provisions against common directors of railroads
and banks. This action, following the result of a long campaign against these provisions was, of course, most gratifying
to our Committee on Federal Legislation and to the banks of
the country.
On September 22 our Committee was surprised to learn that
the Senate Conferees on the Clayton bill had yielded to the
House Conferees and agreed to put back the Interlocking Bank
Directorate provisions as the same had passed the House.
Your Counsel immediately visited Washington and on September 23 had interviews with some of the House Conferees in
which he urged the injurious results of such action, but the
utmost concession made was to enlarge the capital and deposit
limitation to $5,000,000, and the special provisions as to cities
by making them apply to cities having over 200,000 instead of
100,000 population. On the afternoon of September 23 the
report of the Committee of Conference, as agreed upon, was
presented to the Senate. All the Clearing House Associations
and State Bankers Associations were immediately notified of
the action taken and urged to use all legitimate means in endeavoring to procure a reconsideration of the subject. Your
Counsel also wired an argument to the Vice-President of the
United States against the injustice and impolicy of the provisions of the House bill and urging that they be eliminated.
This was read before the Senate on September 30. A copy of
this argument, together with his brief before the Senate Judiciary Committee, was also forwarded to every Senator. The
Senate, however, on October 5, by a vote of 35 to 25, denied
a motion to re-commit the bill and then adopted the report of
the Conference Committee by a vote of 35 to 24. The House
accepted the Conference Committee report October 8 by a vote
of 244 to 54, and the provisions relating to interlocking bank
directorates become effective two years from the date of the
President's approval of the Act.
Emergency Revenue. On September 21 a bill to increase the
internal revenue (H. R. 18891), known as the Emergency Revenue bill was introduced in the House and referred to the Committee on Ways and Means. One of its provisions imposed on
and after November 1 an annual special tax on banks of $2.00
for each one thousand dollars of capital, including surplus and
undivided profits. Our Administrative Committee having determined that this tax should be opposed, your Counsel, acting
under the authority of the Committee on Federal Legislation,
proceeded to Washington and filed with the Committee on Ways
and Means a protest against the injustice of the proposed tax
for the reason that it singled out one class of corporations instead of spreading the burden over all corporations alike and

122

BANKERS' CONVENTION.

was therefore discriminatory and unfair. It was stated that, in
these critical times especially, where the banks have come loyally to the support of the Government and have been straining
every resource to help the situation, they •should be given all
assistance possible instead of being penalized by discriminatory
legislation; that there was no disposition among the banks to
escape their fair share of the "burden of taxation, but protest
was entered against a provision which placed an undue share
of this burden upon banking corporations solely and relieved
all other corporations from the necessity of contributing their
proportionate share. It was therefore urged that the provisions
be readjusted so that the amount of revenue which it is estimated will be derived from this tax on bank capital be assessed
proportionately upon the capital stock of all classes of corporations, including the banks. Advice of this protest was wired
by the General Secretary to all the Clearing Houses and State
Bankers Associations throughout the country, and independent
protests by many of these bodies and by individual bankers
have been forwarded to Congress and to Senators and Representatives. The bill passed the House on September 25 and
went to the Senate, where on September 26 it was referred to
the Committee on Finance. Numerous protests were filed with
this Committee, which allowed no public hearings on the measure, and the latest information obtainable is that the bank tax
provision was referred to a sub-committee, who reported in
favor of eliminating it and substituting a tax on negotiable instruments, but that the full committee rejected this, recommendation and decided to retain the tax on bank capital.
Other Congressional Legislation. Acting on behalf of the
Committee on Federal Legislation, your Counsel has kept track
of all measures introduced in Congress during the present session relating to or affecting banks. This has involved the examination of several hundred bills, original and amendatory,
the great majority of which have progressed no further than
reference to a particular committee; but the progress of a
number of measures has had to be carefully followed and their
development watched, including bills relating to postal savings
banks, agricultural banks and credits, guaranty of deposits,
cumulative voting for bank directors and many other subjects.
This report will not be lengthened by a detailed enumeration
of all these measures. Throughout, your Counsel has kept in
touch with the Committee on Federal Legislation, advising them
of the various measures and being guided by their advice and
judgment. One of the important measures advocated by this
Association, the Pomerene bill relating to Bills of Lading (S.
387), unanimously passed the Senate on June 6, but it has been
impossible to procure any action thereon by the House
Committee on Interstate and Foreign Commerce at the present
session. On this same subject of Bills of Lading, your Counsel
on January 17 filed an exhaustive brief in a proceeding pending
before the Interstate Commerce Commission, the main object
of which was to harmonize differences looking to the, ultimate
adoption of the Uniform Bill of Lading covering the entire
country, both for rail and water carriers. While the Uniform
bill has been adopted and used by carriers generally in Official
Classification and Western Territory and to some extent by carriers in Southern Territory, other carriers have used what has
been called the "Revised Standard Bill of Lading," which to
some extent is different from the Uniform bill. The main differences sought to be reconciled have had to do with conditions
on the back of the bill, being matters primarily of importance
to the shippers. But some of the Southern carriers attempted
to induce the Commission to insert on the face of the Order
bill of lading a clause which would materially restrict its negotiability, and the brief filed was in opposition to any such restriction. The restriction has not been made.
STATE LEGISLATION.
In the promotion of State legislation recommended by this
Association, your Counsel, acting for the Committee on Law,
has placed in the hands of Secretaries and Committeemen of
State Bankers Associations drafts of proposed laws on recommended subjects and has co-operated with such Associations in
securing the passage of such laws, conducting a varied correspondence with members of legislatures and interested persons
in such States and in numerous other ways. The Uniform
Negotiable Instruments Act has been passed in South Carolina
during the present year and only five States are now without
this law, namely, Maine, Georgia, Mississippi, California and
Texas. The Uniform Bills of Lading Act has been passed this
year by the legislature of Rhode Island. Several other of our
Association measures have been passed in the different States,
and a full statement of this legislation will be given in the
Report of the Committee on Law. Your Counsel has also been
engaged in preparing for the Committee drafts of proposed laws
on a number of new subjects wherein legislation is thought to
be desirable.
SECTIONS AND COMMITTEES.
Your Counsel has acted in an advisory capacity to the
Executive Committees and Secretaries of the different Sections
Upon various legal propositions that from time to time have
arisen in connection with the progress of their work. He has
also been constantly consulted by the Protective Committee on

questions of criminal law' and procedure and bas worked with
the Insurance Committee on a number of matters in which his
services have been required.
GENERAL MEMBERSHIP.
As has been mentioned in previous reports, a very large part
of the time of Counsel is devoted to the furnishing of legal
information and the rendering of opinions to the members of
the Association upon submitted questions arising in the conduct
of their business. Several hundred written opinions have been
given during the year-425 to be exact—and about one-half of
these, on matters of more general interest, have been published
in the monthly issues of the JOURNAL. On matters of this nature, your Counsel is also frequently consulted personally, over
the telephone and by wire. During the year four addresses
have been made in connection with Association work. One at
Buffalo on October 24, when an address was delivered before the
Annual Meeting of the National Tax Association upon the State
taxation of banks, in which the conditions in the various
States were summarized; another before Group 1 of the New
Jersey Bankers Association at New Brunswick, on October 30,
where the provisions of the new Income Tax Law were discussed; a third on April 15 before the,,Arkansas Bankers Association at Little Rock, Arkansas, where the provisions of the
Negotiable Instruments Act were reviewed and explained, and
a fourth at the Illinois Bankers Convention on September 2,
where the need for uniformity in the laws governing the collection of bank checks was discussed.
Report of the Library and
MARIAN

Reference

Department.

Ii. GLENN, Librarian.

An increase, during the past year, of 56 per cent. in the number of inquiries answered, and of 62 per cent. in the number
of loans, indicates the growing use which Association members
are making of the Library and Reference Department as a bureau of information. Since the last report more than 4,000
loans have been made to bankers in forty-three States, and hundreds of questions on banking and currency subjects answered,
to which the Association was not equipped to respond until the
creation of the Department three years ago.
One of the Library's problems is how to make its resources
better known to bankers who can relate It to the business of
banking in a practical way when they better understand the
nature of its services. Much of the increased use of the Library, in the past year, is doubtless due to the sending out
of 10,000 special publicity notices through the Secretaries of
the various State Bankers Associations, and the publication of
articles in financial papers, as well as the continuance of reference lists in the JOURNAL-BULLETIN and co-operation with
other libraries in the preparation of bibliographies on financial
subjects. The experiment, which will be repeated this year, of
keeping the Library open on Saturday for bank men who cannot come during banking hours, also increased the use of debate and essay material by A. I. B. students, and the reading
of bank clerks on the work of their departments.
That the growth of the Library's reference resources is keeping pace with its increased use is indicated by the addition of
10,500 articles, or 65 per cent, more than last year, to the
Traveling Loan Collection, which now numbers nearly 23,000
pamphlets, clippings, addresses, bank pictures, etc.; 2,700 clippings were also added to the currency clipping collection.
The practise of loaning books by mail WAS begun for the first
time this year, and has met with sufficient response to warrant
the duplication, for that purpose, of the standard books on
banking. Appropriations for book purchase, however, remain
so inadequate that the Library still lacks important reference
works which should be part of its equipment. Of the 422 additions made this past year to the book collection, which now
numbers about 2,200 volumes, only one-third were purchased.
Since January 1, 1014, a daily index has been made to the
120 financial periodicals received at the Library. This feature
has more than doubled the work of cataloguing and filing, but
it affords an invaluable means of quickly finding fugitive facts
and dates that are constantly being asked for.
The daily index also gives the Library a very complete record of all references in financial publications to the new banking system. The value of this, and of the chronological press
clipping history which now consists of twelve volumes of comment and controversy regarding the Federal Reserve Act, will
be more fully appreciated as the system develops, and it becomes recognized that the Association Library is the only place
where so complete a chronicle has been preserved.
To summarize briefly for the benefit of new members and
those who may not have read previous reports, it may be said
that in the Library and Reference Department the American
Bankers Association has:
A BUREAU OF INFORMATION which answers questions from
Association members on banking, currency and general business
subjects.
A REFERENCE SERVICE for securing special information
wanted by bankers, either for use in their daily business, or
for legislative arguments, convention addresses, or A. I. B. dis-

BANKING SECTION.
cussions; new ideas in bank management or advertising; and
general study purposes of bank officers and clerks.
A BOOK COLLECTION of about 2,200 volumes on money and
banking, including bound financial periodicals, government
documents and statistical manuals.
A TRAVELING LOAN COLLECTION of nearly 23,000 banking and
currency articles, addresses, pamphlets, monographs, mounted
clippings, magazine excerpts, etc., containing information on
banking practise which would otherwise be unobtainable from
any one source, as it cannot be had in book form.
A CARD CATALOGUE INDEX of all books, bankers' association
proceedings, bound sets of financial periodicals, Comptroller's
reports, government publications, bank commissioners' reports,
bank histories, statistical sources and reference books in the
library.
A complete RECORD Of the FEDERAL RESERVE SYSTEM 111 the
form of thousands of press clippings arranged to form a chronological history of currency controversy since 1907; pamphlets;
a loan collection of mounted clippings; and a daily index of all
references in financial periodicals to the new Banking and Currency system since its enactment.
Report of the Protective Committee.
NEW YORK, August 31, 1914.
To the Executive Council and Members of the American Bankers Association:
The Protective Committee submits herewith its annual report for the period covered from September 1, 1913, to August
31, 1914.
FINANCIAL STATEMENT.
A detailed statement will be published in the pamphlet containing financial statements, covering all bills and expenses for
the past twelve months and showing a credit balance.
ARRESTS, ETC.
For the period from September 1, 1913, up to and including
August 31, 1914, the Committee begs to report as to its operations against criminals, as follows:
Total eases not disposed of, arrested prior to Sept. 1, 1913
Total arrests since Sept. 1, 1913, to August 31, 1914

143
308
451

Convicted.
Released, escaped, insane and died

261
94
355

Awaiting trial

By comparing the number of arrests and convictions this
year with those of last year, it will be seen that there were
eight less arrests and sixty-two more convictions this year
than last year.
Since the beginning of the fiscal year, September 1, 1913, up
to and including August 31, 1914, there have been 38 burglaries,
attempted burglaries, hold-ups and sneak thefts reported on
members and 57 similar crimes on non-members, as follows:

Alabama
Arkansas
California
Colorado
Florida
Georgia
Illinois
Iowa
Kentucky
Louisiana
Michigan
Minnesota
Mississippi
Missouri

Mem- Nonhers. Members.
1
4
5
3
6
1
1
5
3
3
8
4
1
3
2
2
1
1
3
3
2
2
1

Mem- 'Nonhers. Members.
1
1
1
1
1
1
1
••
5

Nebraska
New Jersey
New York
North Dakota.......
Ohio
Oklahoma
Oregon
Pennsylvania
South Dakota
Texas
Washington.
West Virginia
Wisconsin

4
1

2
1
4
••
3

Of the 38 attacks on members, 10 were successful burglaries,
18 unsuccessful burglaries, 7 hold-ups and 3 sneak thefts.
Of the 57 attacks on non-members, 25 were successful burglaries, 15 unsuccessful burglaries and 17 hold-ups.
The loss sustained by members was $18,438.16 in connection
with the burglaries, while the loss sustained by non-members
amounted to $75,785.05. .
The loss sustained by members in hold-ups and sneak thefts
was $24,649.81, while the loss sustained by non-members
amounted to $15,437.36.
Our members as a rule report all attacks on them, also the
exact loss sustained; while on the other hand, non-members
rarely report attacks made on them or the loss sustained, with
the result that we do not obtain a record of some of these
attacks or losses sustained.
The following figures are given for your information of reported and attempted burglaries on banks since the inauguration of the Protective Feature, such as are known:
Non-Members
Members
Difference

1,468
395
1,073

Loss
Loss

$2,108,276.08
247,051.33
31,861,224.75

123

FORGERS AND BOGUS CHECK OPERATORS.
There has been no marked increase in the number of forgers
and bogus check operators as far as the professional operators
are concerned for the past twelve months: In fact, practically
two-thirds of the cases reported are the operations of amateurs.
CORRESPONDENCE.
During the past twelve months, ending August 31, 1914, the
Protective Department has received 20,727 reports and other
communications from our Detective Agents. The Department
has also received 1,089 letters and telegrams and written 5,972
letters and telegrams. These figures do not include circular
letters and similar communications.
PHOTOGRAPHS.
The Department now has 4,000 photographs of criminals,
comprising "Yegg" burglars, hold-up men, sneak thieves, forgers and bogus check operators, with a complete record of each.
OFFICES OF OUR DETECTIVE AGENTS.
The Wm. J. Burns Internationad Detective Agency, Inc., now
have 21 offices of their own in this country, as follows:
Birmingham. Alabama; Los Angeles and San Francisco, California; Denver, Colorado; Chicago, Illinois; New Orleans,
Louisiana; Baltimore, Maryland; Boston, Massachusetts; Detroit, Michigan; Minneapolis and St. Paul, Minnesota; Kansas
City and St. Louis, Missouri; Buffalo and New York City, New
York; Cleveland, Ohio; Portland, Oregon; Philadelphia and
Pittsburgh, Pennsylvania; Houston, Texas, and Seattle, Washington, and one correspondent at Des Moines, Iowa.
They also have offices of their own in London, England;
Paris, France; Brussels, Belgium, and Montreal, Canada.
A DEATH-BLOW To NOTE BITERS.
By far the most important criminal case in the history of
the Association, and one which interests our banks of discount
more than any other, has resulted in the conviction in the
United States District Court for the Northern District of New
York at Watertown, New York, on August 28, 1914, of Max M.
*Hart and others who have in the past, through note-kiting
operations, inflicted,serious losses upon the banks of the country. The case, which was tried before Hon. George W. Ray,
District Judge, was that of the United States vs. Max M. Hart
and Adolph E. Wupperman of New York City, Frank W. Fowler .of Pittsburgh, Pennsylvania, and Andrew S. Work of Chicago, who were jointly indicted at Syracuse, New York, at the
April, 1914, term of the United States Court for conspiracy and
fraudulent use of the mails. An article appeared in our June
JOURNAL-BULLETIN on page 634 relative to this indictment. A
jury was drawn and empanelled on July 9, 1914. and the trial
lasted until August 28, 1914, when the jury brought in the
verdict of guilty on the charge of fraudulent use of the mails.
This is the first case that we are able to learn of where a conviction has taken place or even a trial prosecuted growing out
of the kiting of notes.
Max M. Hart has been very active for a great many years
in connection with the bankruptcy proceedings of various firms
and corporations where he was directly or indirectly interested. There was but one result when Max M. Hart appeared
on the scene, and that was the bankruptcy court. He appeared
to be immune from prosecution up to this time. In 1909 and
1910 Hart was directly or indirectly interested in a large number of corporations that went into bankruptcy, and the banks
lost thousands of dollars through the operations at that time.
The scheme in the cases in the past and also in the case in
which he was convicted was to get control of corporations and
firms that needed additional capital in their business and were
well rated. Hart would arrange to exchange notes between the
various corporations and firms for like sums. These notes were
then deposited in the various banks, discounted, and in this
particular case some of the notes were forwarded through the
mails ; checks representing the proceeds of the discounts were
also sent through the mails; so in this way when the Oneida
Milling Corporation, which was doing a flour and grain business at Oneida, New York, went into bankruptcy, and the hearings before the referee took place, there was sufficient testimony
brought out to warrant the Government authorities to look into
the matter. Hon. John H. Gleason, United States District Attorney for the Northern District of New York, who resides at
Albany, New York, took up the investigation, with the result
that the Grand Jury returned indictments against these four
defendants. As above stated, the case was tried on July 9th,
before Hon. George W. Ray. Assistant United States District
Attorney Thomas H. Dowd of the Northern District of New
York, who resides at Cortland, New York, opened the case for
the Government and very ably conducted the trial. Hon. John
H. Gleason, United States District Attorney, summed up for
the Government. The defendants were all represented by very
able counsel, with exception of Andrew S. Work, who did not
wish the services of an attorney. The conviction in this case
is a very important one, inasmuch as it gives National and
State bank examiners and the various banks of discount
throughout the country a precedent to work on, and shows
conclusively that if the mails are used in the slightest degree
with fraudulent intent, criminal action will lie through
the

BANKERS' CONVENTION.

124

United States courts. The chief advantage in trying a case in
a United States court is that witnesses can be subpcenaed from
anywhere in the United States and can be compelled to attend,
while in proSecutions -in State courts the authorities have no
power to compel any witness to appear who is out of the jurisdiction of the State. In this particular case about eighty witnesses were sworn by the Government and testified. The defendants put in no defense whatever. Over five thousand pages
of testimony were taken and there were approximately over
five hundred exhibits in the case. Inasmuch as there were so
many exhibits to go over, the jury was out eighteen hours, and
Judge Ray consumed a day in his charge to the Jury.
At the January, 1892, session of the Court of Quarter Sessions at Philadelphia, Pennsylvania, Max M. Hart, alias Hertz,
was indicted for obtaining money under false pretenses. On
April 0, 1892, Hart entered a plea of guilty and on the same
day was sentenced to pay a fine of one cent and to be confined
in the county jail for four weeks. Hart stated to the court at
Watertown, New York, that he did not serve any of this sentence. Hart's career, therefore, started as far back as 1892.
He has confined most of his operations to the States of New
York, New Jersey and Pennsylvania. On September 2, 1914,
following his conviction, Hart was sentenced to serve five years
in a Federal prison at Atlanta, Georgia, and pay a fine of $1,500.
Adolph E. Wupperman was sentenced to pay a fine of $2,500
and sentence was suspended on Frank W. Fowler and Andrew
S. Work, who were used by the Government as witnesses. This
case will be appealed by the defendants.
The manager of our Protective Department, Mr. L. W. Gammon, who attended the various hearings before the referee in
bankruptcy, and was present during the entire trial of this case,
rendered most effective aid to the prosecution, having labored
for months in accumulating the facts which helped make conviction possible. From the beginning of the various investigations and running through a period of several years, Mr. Gammon has handled this case in person, in view of its importance
to the Association, and he is deserving of hearty congratulations upon its successful outcome.
DETAILED REPORTS
The manager of the Protective Department will read his report to the Executive Council, which covers matters pertaining to the Department other than those contained in this Committee's report.
The William J. Burns International Detective Agency, Inc.,
will make a detailed report of the work accomplished by them
during the past fiscal year. This report will be published in
the Annual Proceedings and also printed in pamphlet form for
distribution at this Convention.
For more detailed information as to particular cases referred
to we respectfully refer you to the monthly JOURNAL-BULLETIN.
All of which is respectfully submitted.
THE PROTECTIVE COMMITTEE,
FRED. E. FARNSWORTH,
Secretary.
Report of the Agricultural Commission.
To the Members of the American Bankers Association:
One year ago at Boston, this Association in convention assembled, created an Agricultural Commission of seven members,
two of whom are members of the Council, and on behalf of this
Commission I herewith submit its report.
The Commission was given an appropriation of $4,000—the
same amount as previously given the Committee on Agriculture
and Education—and was given no instructions.
We have to report that several additional State associations
have appointed committees on agriculture and education, the
total number now being thirty-eight.
Their interest and work and that of the individual bankerfarmer is growing amazingly and beyond anything we had
hoped for, all indicating that the "soft pedal" could not be
"put on the agricultural stuff" even if one was so short-sighted
as to attempt it. More than 55 per cent, of the member banks
of this Association have a capital of $25,000 or less, and the
capital of over 75 per cent, of the banks constituting this Association's membership is $100,000 or less.
In other words, 90 per cent, are country banks, and most of
these are banker-farmers, directly or from a business standpoint
vitally interested in agriculture and the farmers' success.
These percentages, the comparatively small size of the average bank, and the interdependence of these bankers and farmers, proves how little basis there is for "buncombe" talk of the
political agitator and demagogic statesman, who would have
you believe that bankers are all of great wealth, with interests
and motives diametrically opposed to those of their communities.
It is just such ideas as these that THE BANKER-FARMER, on a
broader scale and more widely circulated, would combat as well
as helping to create a new sentiment in doing the needed service in agriculture and several public welfare lines that is to
be expected of and must be rendered by such a great organization as this.
We believe that the American farmer is in every way better

circumstanced—that our agriculture and its outlook to-day is
brighter and rapidly reaching a more permanent basis than ever
before in our history. Every honest effort on the part of such
organizations as this helps measurably in hastening to build
up in this nation its strongest industry and bulwark and in
perfecting here the greatest rural civilization the world has
seen.
The chief work of this Commission has been the publication
of THE BANKER-FARMER, of which eleven monthly issues have
been printed and circulated to the extent of about 25,000 copies
per month. Twenty-nine State Associations have co-operated
with the Commission in this work and borne about one-third
of the expense. THE BANKER-FARMER reaches some nineteen
thousand bankers regularly, several hundred individual subscribers, and many bankers distribute monthly some five thousand copies among their clients.
As most of you are familiar with or have had an opportunity
to peruse THE BANKER-FARMER, It is not required nor appropriate to occupy your time,with unnecessary words in its favor.
Regularly, each month, it has tried through some twenty-five
thousand words to give you an idea of its views with reference
to a better agriculture and rural life—of a better citizenship
and public welfare, and the banker's living interest in and relation thereto.
Your Commission and the Chairman-Editor have been devoted to the cause and have been repaid with many appreciative
comments. The agricultural press has given THE BANKERFARMER a most cordial welcome and co-operation, particularly
evidenced by the special articles written for it by the most
prominent agricultural editors.
Some of the best-known general and farm publications have
desired to club with us and have given this Association most
commendable mention for its work in these lines. The farmers
themselves and their organization officers have appreciated the
work and have so expressed themselves.
Trim BANKER-FARMER, Number Twelve, completing Volume
One (192 pages of 300,000 words), is soon to come from the
press, when it and something more than a full year's work
will have been paid for with a balance of some six hundred
dollars remaining to our credit.
Almost a third of a million copies of THE BANKER-FARMER
have been circulated at a cost to this Association of less than
one cent per copy, including postage and every other expenditure by the Commission for all purposes and including more
than three thousand individual letters. All this was only made
possible through a most unusual and public-spirited co-operation of many different men and interests, because every penny
did its full service, and because no member of this Commission
received any compensation, money or other remuneration, excepting only the expense, as provided by your rules, for the
three of them who attended the mid-year Council meeting.
While at its mid-year meeting in May your Executive Council
unanimously endorsed the work of this Commission and voted to
continue THE BANKER-FARMER through the coming or second
year—yet we presume your approval will be necessary. In any
event, this Commission appointed by last year's convention has
all but ended its legal life. More than that—and concerning
THE BANKER-FARMER, the compilation of which was undertaken
as a personal labor of love and service has grown arduous, and
.
has now become impossible for the Chairman to continue in
connection with the added burdens incident to the recent and
sudden death of his father.
The Chairman desires to take this occasion to express to
each member of the Commission, to the. President and General
Secretary as well as to the Administrative Committee, the Executive Council and hundreds of members of this Association
his deep and grateful appreciation of the confidence, support
and encouragement given him.
Appendid hereto is an itemized statement, and another filed
with the Council accounts in detail for each and every receipt
and expenditure.
Asking your permission to issue within the ensuing two
weeks the concluding number of Volume One of Tim BANKERFARMER, your Commission thanks you for your consideration,
patience and the opportunity for service, and with the termination of this morning's programme surrenders its authority.
Respectfully submitted,
B. F. HARRIS, Chairman,
President, First National Bank, Champaign; Ill.
W. D. VINCENT,
Cashier, Old National Bank, Spokane, Wash.
C. H. MCNIDER,
President, First National Bank, Mason City, Iowa.
Jos. HIRSCH,
Vice-President, Corpus Christi National Bank, Corpus
Christi, Texas.
J. W. WHEELER,
Vice-Pres., Capital National Bank, St. Paul, Minn.
II. I. WOODSIDE,
Pres., Farmers & Merchants Bank, Greenville, S. C.
J. It. WHEELER,
Cashier, Farmers & Merchants Union Bank, Columbus,
Wis.

BANKING SECTION.
EXPENDITURES OF THE AGRICULTURAL COMMISSION, 1913-14.
$ 15.40
Office, Express, Telegrams, etc
47.53
Cabinet flies, rubber stamps, Typewriter rent
12.30
Clipping Bureau
21.60
Mimeographing
95.00
Stamps
128.73
Stationery and supplies
470.00
Stenographic services—eleven months
81.64
Engraving, and sketches for THE BANKER-FARMER.
L. M. Tobin. and L. M. Hodges,
750.00
work for BANKER-FAR3IER
Literary work and make-up
3,629.20
Flanigan-Pearson Company, printers of THE BANKER-FARMER
243.66
Second-Class Postage on BANKER-FARMER
186.76
Commission Expense to Hot Springs meeting
Total Commission Expense
Paid voucher of previous Committee

85.639.82
165.00

Total Expenditures
Estimated for November

$5,804.82
550.00

Received from American Bankers Association. Appropriation
From State Associations. etc

$4,000.00
2,997.30

$6,354.82

Total Receipts
Total Expense

$6.997.30
6,354.82

Unused Cash Balance.
Paid for former committee

642.48
165.00

807.48
Total expenditures by the Agricultural Commission of the
American Bankers Association Funds, $3,192.52. This is only
$149.11 in excess of the expenditures of the Agricultural Committee for the year 1912-13.
The Agricultural Committee in 1912-13 received sixteen cents
per member from the State Associations for one conference report.
The Agricultural Commission received twelve and one-half
cents per member from the State Associations for twelve numbers of THE BANKER-FARMER Or 1913-14.

Report of the Committee on Federal Legislation.
The Committee on Federal Legislation has kept in close touch
with all pending legislation relating to banks during the present session of Congress and a number of bills of harmful effect
have been opposed. The Committee has devoted much time and
attention to the various measures by personal attendance of
a number of its members at Washington on different occasions,
by mail and by telegraph, and has enlisted the active support
and co-operation of Clearing House Associations, State Bankers Association and other organizations and individuals along
lines of procedure mapped out by the Committee. A brief resume of, the more important subjects of legislation is all that
is necessary to present in this report.
Two amendments of the Federal Reserve Act have been
passed. One, approved August 4th, which makes more generally available the temporary provisions of the Act relative
to National Bank circulation, authorizing the Secretary of the
Treasury to suspend the limitations of the Aldrich-Vreeland
Act under certain conditions. He can remove the restriction
which makes the Act available only to banks having bond secured circulation of at least 40 per cent. of the capital, and
also the restriction that the total circulation shall not exceed
the amount of unimpaired capital and surplus, except that no
bank is permitted to issue circulation in excess of 125 per
cent, of its unimpaired capital and surplus. He can also extend
the benefit of the Act to all qualified State banks and Trust
Companies which have joined the Federal Reserve system. A
second amendment was approved August 15th. It amends
Section 19 relating to the keeping of reserves by State banks
and Trust Companies during the three-year period, so as to
correct an ambiguity in that Section. Other amendments of
the Act are pending. A bill was introduced by Senator Reed
on September 16th to amend Section 11 by giving the Federal
Reserve Board power to permit member banks to carry in their
respective district bank any portion of their reserves now requied to be carried in their own vaults, and to amend Section
16 by authorizing the Secretary of the Treasury to devise and
put in operation a system of clearances of National Bank notes
between the Treasury, the Federal Reserve Banks and the
member banks. This passed the Senate on September 18th, and
on September 24th was reported from the House Committee
on Banking and Currency with an amendment of the first stated
Section, giving member banks themselves, for a period of three
years, permission to carry the reserve required to be kept in
their vaults in the Federal Reserve Bank of the District.
A bill was introduced by Senator Owen on August 27th
(S. 6398), which as amended and passed by the Senate on
September 11th further amends the Aldrich-Vreeland Act so
as to raise the limit of circulation which a National Bank can
base on commercial paper from 30 to 75 per cent, of unimpaired
capital and surplus. Also to extend the privileges of the Aldrich-Vreeland Act to all State Banks and Trust Companies hay-

125

log a capital of not less than $25,000 and a surplus of 20 per
cent. On September 28th, the House Committee on Banking
and Currency reported the bill, increasing the limit. of circulation based on commercial paper to 100 per cent., but striking out the provisions extending the benefits of the Act to
State banks and Trust Companies.
On September 24, the bill introduced by Mr. Glass on March
25 (H. R. 15038) to amend the Federal Reserve Act, relative
to acceptances was reported by the House Banking and Currency Committee without amendment. The purpose of the bill
is to authorize the Federal Reserve Board, in its discretion, to
increase the amount of acceptances based on the importation
and exportation of goods which a member bank of the system
may discount and which a Federal Reserve Bank may rediscount.
The subject of interlocking bank directorates has required
more time and attention than any other particular subject
handled by the Committee. We have constantly fought this
proposition from the inception of the original drastic provisions
introduced in January of this year, securing their modification
in the House and their entire elimination in the Senate, only to
experience the disappointment of having the Senate conferees
yield to the House conferees, and put back the House provisions
of the bill, further modified, however, so that as finally passed
and as they will become law they apply only to banks having
capital and deposits exceeding five million dollars, with the
special provisions made applicable only to cities of over 200,000
instead of 100,000 population.
Every effort was made while the Conference report was under
consideration by the Senate to have the same recommitted for a
reconsideration of these provisions, but without success. During the entire progress of this measure, the members of our
Committee have been most active and General Counsel of the
Association has ably represented the Committee throughout, having appeared at the hearings before the House Committee, presented a brief before the Senate Judiciary Committee which
materially aided in the temporary entire elimination of the
interlocking bank directorate provisions, and used every effort
in his power to secure recommitment of the bill to the conferees. As finally modified the bill prohibits, after two years,
any person from at the same time being a director or other
officer or employee of more than one bank or trust company
operating under the Federal law where either has deposits,
capital, surplus and undivided profits aggregating more than
five million dollars, and also prohibits a private banker or a
director of a State bank or trust company having deposits, capital, etc., exceeding five millions from being a director in any
bank operating under the laws of the United States. Furthermore, in cities of upwards of 200,000 inhabitants no bank or
trust company operating under the National law can have as a
director, officer or employee any private banker or director,
officer or employee of any other bank or trust company located
in the same place. The Act does not apply to mutual savings
banks, and it also permits a director, officer or employee of a
bank or trust company operating under National law in any
such city to be in one other bank or trust company where the
entire capital stock of one is owned by stockholders in the
other. The Act furthermore is to• be construed not to forbid
a Class A director of a Federal Reserve Bank from being an
officer or director or both in one member bank. The criminal
penalties have been eliminated and authority to enforce the
provisions applicable to banks is vested in the Federal Reserve
Board.
The Clayton bill is one of the three Anti-Trust bills which
were pressed for passage at this session. Of the other two,
the act to create a Federal Trade Commission was approved
by the President September 26, 1914, but the bill to prevent
over issues of securities by carriers, which passed the House
on June 5 and was reported with amendments by the Committee on Interstate Commerce to the Senate on July 23, has not
been passed by that body.
The Emergency Revenue bill was introduced in the House
on September 21, and it provided an annual special tax on
banks of $2.00 for each one thousand dollars of capital, including surplus and undivided profits, to take effect November
1. Our Committee immediately filed with the Ways and Means
Committee of the House a protest as follows:
The American Bankers Association, with a membership of 15,000
banks, respectfully protests against the injustice of the provision of
H. R. 18,891, taxing banks two dollars for each one thousand dollars of capital, surplus and undivided profits, for the reason that such
tax, by singling out one class of corporations instead of
spreading
the burden over all corporations alike, is discriminatory and unfair.
In these critical times, especially when the banks have come loyally
to the support of the Government and have been straining every resource to help the situation, they should be given all
assistance Possible instead of being penalized by discriminatory legislation.
There
is no 'disposition among the banks to escape their fair share
of the
burden of taxation, but we earnestly protest against a provision
which
places an undue share of this burden upon banking
corporations solely
and relieves all other corporations from the necessity of
contributing
their proportionate share.
It is therefore respectfully urged that the
provisions referred to be
readjusted so that the amount of revenue which it
is estimated will
be derived from this tax on bank capital be
assessed proportionately

126

BANKERS' CONVENTION.

upon the capital stock of all classes of corporations, including the
banks.
The bill passed the House. on September 25 and was referred
to the Senate Committee on Finance. We filed with that committee a protest as follows:
The American Bankers Association respectfully protests against the
imposing of a special tax on bank capital of two dollars per thousand, while leaving other corporate capital untaxed, because the banks
of the country are heavily overtaxed now in various ways and it does
not seem fair that they should be discriminated against and made to
bear the sole burden of a tax on capital while other corporations escape. There is no disposition among the banks to escape their fair
share, but we urge that the proposed law be readjusted so that the
amount of revenue which it is estimated will be derived from this
tax on bank capital be assessed proportionately upon the capital stock
of all classes of corporations, including the banks.
In support of these protests, independent action was urged by
wire on the part of Clearing Houses and State Bankers' Associations, and numerous protests were filed by such associations
as well as by individual banks. We were also represented in
Washington by the General Counsel of the Association. During
the progress of the bill, the elimination of the tax on bank
capital and the substitution of a stamp tax on bank checks
was recommended by a sub-committee, but rejected by the full
committee. In the Democratic caucus to decide upon action
by the Senate, the tax on bank capital was reduced to $1.00 a
thousand.
On the subject of the Income Tax our Committee have considered a number of requests that the Association test the constitutionality of the Act in the courts, but it has been deemed
the best policy that the Association should not take the initiative or be identified in this particular: Various other requests
have been made that the Association urge the amendment of
the Income Tax Act with rdference to the deduction at source
feature. Two propositions have been advanced, first, that we
urge an amendment of the Act by eliminating this feature
entirely; second, that we urge its amendment by doing away
with the collection at source, allowing to remain such of the
provisions as may provide for a return or information at
source. Our committee has given full consideration to this
subject and decided that the best policy is to urge the entire
elimination of the deduction at source feature; if that cannot
be attained, then to procure an amendment providing for information at source, without deduction or collection at source,
of the law. Bills have been
and simplifying the provisions .
introduced and are -pending in Congress along these lines, but
it has been impossible to procure any action thereon at the
present session.
We have given consideration to the various bills relating to
the subject of agricultural credits, including the bill introduced
by Mr. Moss in January, to establish National Farm Land
Banks, embodying the ideas of the United States Commission
which studied agricultural credits abroad, and also the later
bill, introduced simultaneously in Senate and House May 12,
to be known as "The Federal Farm Loan Act," following joint
hearings on this subject by sub-committees of the Senate and
House Committees on Banking and Currency. The bill is now
pending before the Committees on Banking and Currency in
the two branches of Congress, where it will doubtless be further approved. It will not be pressed at the present session,
the pending trust legislation having consumed so much time, but
final action upon the bill is looked for some time next winter.
In a statement in the .Senate on September 24, Mr. IIollis, of
the Committee on Banking and Currency, who introduced the
bill, summarized it as follows: "Speaking generally, the pending rural-credits bill follows the general lines of the Federal
Reserve Act, and it is intended to supplement that measure.
The Federal Reserve Act was for the particular benefit of commercial banks, and for the better handling and greater ease of
short-time loans: it was intended to satisfy commercial needs.
The pending bill is for the benefit of farmers, so that they may
work with better and more effective instrumentalities in their
vocation ; it is intended to provide facilities for long-term loans,
with small yearly payments, at a low rate of interest." He
further stated •that the Committee desired the most widespread
publicity for the bill so that farmers and people generally may
become familiar with its provisions and forward to their Senators and Representatives in Congress their suggestions and
criticisms.
Our committee are in the attitude of watching the developments of this bill without at the present time making any positive recommendations upon the subject.
On the subject of Postal Savings, the Moon bill (H. R.
7967), which passed both Houses, was vetoed by the President
on September 11. The Postal Savings law limits the deposits
of any one depositor to $500, exclusive of accumulated interest, and not more than $100 can be deposited in any one
month, and the law provides that the Government shall pay
two per cent, annual interest on such deposits. The bill as
finally agreed to by the House and Senate removed the restrictions upon the amount which could be deposited in any one
month and amended the law so that the balance to the credit
of any person upon which interest was payable, exclusive of
accumulated interest, should not exceed $500, but with an

added provision that the Board of Trustees might in their discretion and under such regulations as they might promulgate,
accept additional deposits not to exceed in the aggregate $500
for each depositor, but upon which no interest should be paid.
The bill further amended the Federal Reserve Act, under which
postal savings can only be deposited in solvent banks, whether
organized under National or State law and whether member
banks or not. This last stated provision caused the President
to veto the bill, which he declared incompatible with sound
public policy, submitting that as a matter of principle as well
as of policy the new banking should be safeguarded very jealously, and it would be a mistake to take away any of the
benefits or advantages held out by the present law to member
banks to enter the system. Following the veto message, which
was delivered on September 11, Mr. Moon introduced a new
bill in the House (H. It. 18.842), which provides for the amendment of the Postal Savings Act substantially as agreed upon
by the conference, but with a new provision regarding the
deposit of postal savings funds.

Report of Committee on Law, by F. W. Foote, Chairman.
Under the provisions of the Constitution adopted at the
last Annual Convention in Boston, the Executive Council at
its first meeting thereafter elected from its membership the
undersigned Committee on Law, which included the late Mr.
Robert E. James, whose death in Easton, Pa., on November 10
last was deeply felt and keenly regretted.
The attention of your Committee during the past year has
been chiefly devoted to the promotion of the enactment in the
different States of legislation on twelve subjects recommended
by this Association, having for their end uniformity and adequacy of law governing banking and commercial transactions.
But eleven State Legislatures have held regular sessions this
year down to the present time.
Working through State Associations of bankers, your Committee actively aided by the General Counsel of the Association were pleased to report enactments as follows:
GEORGIA.
A fraudulent check bill. This is not the precise measure recommended by our Association, but it makes it a misdemeanor
for any person to draw a check against insufficient funds upon
which he obtains value or induces such person to postpone an3
remedy he may have against the drawer, with a proviso, however, that if the drawer deposits with the bank within thirty
days funds sufficient to meet the check with interest there shall
be no prosecution. The Georgia Bankers' Association were
active in supporting this measure.
KENTUCKY.
The Legislature of Kentucky this year passed three of our
Association measures, namely: (1) An Act to punish the making or use of false statements to obtain credit; (2) in Act to
punish derogatory statements affecting banks, and (3) an Act
to punish the issuing of a check or draft without funds in bank.
The Kentucky Bankers' Association actively supported these
measures.
LOUISIANA.
Louisiana has passed an Act to punish the giving of checks
on banks where the drawer has not sufficient funds or credit,
but in changed form from our Association measure.
MARYLAND.
The Legislature passed an act to make it a misdemeanor to
issue and obtain value upon a check against insufficient funds,
but the language is different from our Association draft.
MISSISSIPPI.
The Legislature of Mississippi this year passed a general
banking law in which was included our Association measure
authorizing a bank to pay a deposit in two names to the survivor.
RHODE ISLAND.
The Uniform Bills of Lading Act was passed by the Rhode
Island Legislature this year.
SOUTH CAROLINA.
The South Carolina Legislature this year passed the Uniform
Negotiable Instruments Act.
The above indicates that a total of nine measures upon subjects of legislation recommended by this Association have been
passed this year.
Other subjects of legislation relating to or effecting banks
which have been passed in the different States this year are
as follows:
In Kentucky, an Act to authorize banks and trust companies
to subscribe for stock of the Federal Reserve Bank and making
the banking laws of Kentucky conform to the requirements of
the Federal Reserve Act. Also a bill providing for an additional
State Bank Examiner. Also an amendment to the Kentucky
statutes putting those who supply money and supplies to manufacture establishment on the same basis. In case of disaster it
puts banks on the same basis as other creditors.
In Louisiana. A joint resolution was passed imposing an

BANKING SECTION.
amendment to the State Constitution with reference to the
taxation of banks; an act making it a felony to repledge collateral withdrawn under Trust receipts; an act creating a banking commission and providing its duties and compensation; an
act making it a misdemeanor to circulate false statements concerning building and loan or homestead associations; a similar act with reference to life and fire insurance companies;
an act making it a misdemeanor for a member of the State
Banking Department to circulate rumors concerning the financial condition of any bank; an act to authorize State Banks,
Savings Banks and Trust Companies to become members of the
Federal Reserve Bank.
In Maryland, acts relating to the taxation of State and
Municipal bonds and also to the taxation of securities and
bank shares of foreign corporations owned by residents of Maryland.
In Massachusetts, acts have been passed (1) to allow Trust
Companies to become stockholders in the Federal Reserve Bank;
"
(2) preventing the misuse of the word "Trust ; (3) to unify
mortality claims of Savings and Insurance Banks; also to provide special forms of policies; (4) regulating reserve of Trust
Companies in Boston within three miles from State House.
In Mississippi, an act has been passed establishing a banking department, creating a Board of Bank Commissioners,
prescribing their qualifications, duties and compensations, providing for the election of State bank examiners, prescribing
their qualifications, duties and compensation, defining what
shall constitute a bank and banking business in the State of
Mississippi, fixing the capital required to do a banking business, and providing for the examination, regulation and control
of banks and banking business conducted by corporations,
other than National banks and postal savings banks, and fixing
the assessment for the revenues of the department, fixing qualifications and liability of officers' stockholders and directors of
banking corporations; fixing the qualifications and liability of
persons, firms and corporations in the banking business; providing for the payment of deposits to minors and other persons
under disability and on joint account; prohibiting banking except under the provisions of this Act; providing for the liquidation of banks and the distribution of the assets thereof; providing for givirig publicity to deposits more than five years old;
and prescribing penalties for the breach of any of the provisions
thereof, and to provide a system for guaranteeing deposits, and
for other purposes, without expense to the State.
In New Jersey, (1) a bank tax bill was passed under which
shares of banks and trust companies are taxed at the rate of
three-quarters of one per cent, of their true value after deducting the real estate owned by the bank, such taxation being in
lieu of all other State, county or local taxation upon the shares
or upon any personal property owned by the bank the value of
which enters into the tax value of the shares. Also, (2) acts
known as direct inheritance tax laws, (3) an act making
October 12 a public holiday, (4) authorizing trust companies
and State banks to become members of the Federal Reserve
Association, (5) an act providing that in suits upon negotiable instruments, the authenticity of any signature or indorsement on the instrument shall be considered as admitted
unless the contrary is pleaded.
In New York, the Legislature passed an extensive revision of
the Banking Laws of the State.
In Ohio, at a special session, an Act was passed enabling
banks to become member banks in the Federal Reserve system.
In Rhode Island, an act was passed amending the holiday
law.
In Virginia, an act was passed to empower the banks to become members of the Federal Reserve Bank, and also an act
to provide for general powers for the purpose of doing a Trust
business in addition to a general banking business.
The following draft of proposed law to limit the liability of
a bank which refuses payment of a check through error has
been prepared by the general counsel and approved by the
Executive Council, and is now recommended to the General Convention for its approval in accordance with Section 16 (a) Article V of the Constitution, the dual approval of both Executive
Council and Convention being a prereauisite to the urging of
its enactment through State organizations in the different
itates.
An Act to limit the liability -of a bank to its depositor for
non-payment of a check through error.
Be it enacted, etc.
No bank shall be liable to a depositor because of the non-payment,
through mistake or error and without malice, of a check which should
have been paid, unless the depositor shall allege and prove actual
damage by reason of such non-payment, and in such event the liability shall not exceed the amount of damage so proved.
It frequently happens that by reason of the crediting a deposit or charging a payment to a wrong account, or because of
some other mistake or error, a bank will refuse payment of a
check which is good and the depositor, feeling aggrieved, will
sue the bank for damages for dishonoring his paper and injuring his credit. The courts in a majority of the States hold
that a bank which so dis'honors a check, especially where the
depositor is a mbrchant or trader, is liable to him for sub-

127

stantial damages, and that it is not necessary for the depositor
to allege or prove any actual damage in order to recover, substantial damages being presumed. As a consequence there have
been a number of cases where banks have been mulcted by
juries, in amounts ranging from $1,000 down to $30, because
of the refusal, through mistake, to pay a check, and this notwithstanding the bank has acknowledged its error to the holder
of the check and made all possible apology and reparation so
that no real injury to the depositor's credit has resulted. In
view of this condition of the law in many States, it seems desirable to urge the enactment of a statute such as proposed
which would limit the liability of the bank to the actual damage
sustained by the depositor and compel him to affirmatively prove
such damage in order to recover.
The following proposed draft of law has also been approved
by the Executive Council and is now recommended to the General Convention for its approval, in accordance with Section
16 (a), Article V.:
An act relative to the payment of deposits of minors or other persons under disability.
Be it enacted, etc.
Whenever any minor or other persons under disability shall make or
have credit for a deposit in any bank in his or her name, such bank
may pay such money on the check or order of such depositor, the same
as In cases of depositors not under disability, and such payment shall
be in all respects valid in law.
In a majority of the States there are statutes which authorize and protect the bank in making payment of deposits to
minors, but such statutes do not exist in all the States, and
in many States the statutes relate only to deposits of minors
in savings institutions and do not extend to general deposits
subject to check. It is thought desirable to urge the enactment of an authorizing statute of this kind in all the States
where statutory provisions are lacking, and the above draft
is therefore presented for approval of the general Convention.

Committee on Fidelity Bonds and Burglary Insurance.
RICHMOND, VA., October 12, 1914.
To the American Bankers' Association, Richmond, Va.:
GENTLEMEN: Your Committee on Fidelity Bonds and Burglary
Insurance submitted to the Executive Council on May 1, 1914, a
full report of its work to that date. In order to give you a complete report at this time, it will be necessary to refer back to
the report of May 1, taking up first your Committee's treatment
of uncompleted subject referred to therein, before reporting
upon new work undertaken by the Committee in the last six
months. While this report will contain a number of details
that add materially to its length, the importance of these details are such that your Committee feels justified in bringing
them to your attention.
The report of May 1 referred to the advantages of the 1913
copyright bond of the Association, and included a list of twentyeight insurance companies that had been licensed to execute the
bond, the rate being $2.50 per thousand per annum. Four (4)
additional companies have been licensed, as follows:
The American Fidelity Company, Montpelier, Vermont.
Bankers Limited Mutual Casualty Company of Wisconsin, Milwaukee,
Wisconsin,
Maryland Casualty Company, Baltimore, Maryland.
Pacific Coast Casualty Company, San Francisco, California.
This makes a total of thirty-two (32) companies from which
this bond may be obtained.
Further reference was made to the approval of this bond by
various authorities, and a number of opinions were quoted.
Your Committee has accepted as final neither its own conclusions reached when compiling the bond, nor the conclusions
of the various authorities quoted in the report of May 1, but
has continued to invite a careful review of the bond and its
comparison with all other bond forms by the attorneys of membership banks, with the invariable result that the bond is
approved by the bank's attorney and adopted by the
bank. In addition to endorsements already reported to you,
the Bankers' Association of the District of Columbia has approved the bond and recommended it for use to every member
bank in the District; the Insurance Department of the Georgia
Bankers' Association has approved the bond and recommended
it for use; the Insurance Committee of the Arkansas Bankers'
Association has done likewise, and further recommends that
the bond be adopted by the Insurance Department of that State
as a statutory form. Your Committee takes this occasion to
repeat its recommendation to all member banks that this form
of bond be used.
Several questions as to various conditions of the bond raised
by the Surety Association of America, and by surety companies
were outlined in the report of May 1. Only one of these questions has been found troublesome by your Committee, that being the apparent conflict of the bond with the insurance statutes of the State of Iowa. The Surety Association of America
took the position that the Insurance Companies, members of
that Association, could not furnish the bond in the State of
Iowa, because the bond contained no short rate table of return premium, whereas section 1729 of the insurance statutes
of that State required such a table to be printed in every bond

BANKERS' CONVENTION.

128

approved for use in that State. The Iowa Commissioner of
Insurance held that our bond did not comply with the law,
and could not be used in the State. Your Committee, together
with the General Counsel of the Association, took the position
that our bond at no time contemplated a short rate return
premium, but at all times contemplated a pro rata return premium, and does therefore come within the provisions of the
law referred to. The matter became the subject of an extended correspondence, and a ruling has finally been obtained
under date of September 8, 1914, from the Hon. Emory II. English, the new Commissioner of Insurance of Iowa, which sustains the contention of your Committee, and permits the use of
the bond in that State.
The report of May 1 next called attention to an endorsement which your Committee recommended for use in connection
with the Association's bond when substituting this bond for
other forms. The endorsement provides for the continuance
of the insurance company's liability for losses occurring during
the life of the previous bond, but discovered subsequent to the
execution of the Association's bond. The great importance of
this endorsement will be brought out more clearly in the discussion of a claim now pending by a member bank against one
of the insurance companies, to which reference will be made
later in this report. Your Committee again urges the careful
reading of this endorsement and its use by member banks in
connection with the Associations' copyright bond.
A recital of these conditions, while of a technical nature,
serves to show the character of work necessary to insure to the
member banks the greatest benefits under the Association's
copyrighted forms. As these forms are more widely introduced,
and come into more general use, questions of this character are
continually being presented to your Committee for solution.
Inquiries of any nature have been freely invited by your Committee, and have at all times had prompt attention.
BURGLARY INSURANCE.
Your Committee reported under this subject on May 1 that
the policy forms of Burglary Insurance in general use contain
many dangerous and unnecessary conditions that should be corrected, and recommended that a new form of Burglary Policy
be compiled by the Committee for the use of the member banks.
Such new form has been completed, and is attached to this report and made a part hereof.
All Burglary Policy forms have heretofore contained a long
list of warranties by which the bank applying for the insurance guarantees the dimensions of its safe, vault, lock, door,
etc., and other conditions upon which the average banker is
not usually well informed. The policy compiled by your Committee reduces these warranties, or guaranteed statements of
the applicant, as nearly as a proper identification of the equipment will permit, and relieves the applying bank of much of
the danger of inadvertently incorrect warranties.
The hold-up coverage has been extended throughout the
whole twenty-four (24) hours, instead of being limited, as
shown in other policies. The conditions under which the insurance company may not be held liable have been carefully revised to give the bank a fairer protection. The manner in
which notice of loss and claim shall be made and settlements
effected have been simplified to the benefit of the bank. The
policy is shorter, is more direct in its statement of relations
between the insurance company and the bank, and its conditions are so grouped as to materially simplify the contract.
Your Committee recommends that the policy be copyrighted
and adopted by this Association, and that the same method of
introduction of the policy into general use be followed out as
has proven so successful with the copyright Fidelity Bond.
Your Committee cannot too strongly emphasize to you the
wisdom of the adoption and use of proper insurance and bond
contract forms. All of the burglary losses for the year of 1913
reported by member banks have been carefully followed up by
this Committee, and almost without exception such differences
as have arisen between the banks and the insurance companies
have been due to restrictive conditions contained in the insurance contracts. It behooves the bank to see in each case that
It purchases the proper form of insurance contract, and if this
is not done the bank should not blame the insurance company
for insisting upon a settlement within the limits of the contract bought.
RATES.
From all of the information that your Committee has been able
to obtain, we are of the oplinon that a rate of $2.50 per thousand per annum on the form of Fidelity Bond copyrighted and
used by the Association is not unfair.
The liability of the insurance companies under this form is
undoubtedly increased over that under other forms, and the
furnishing of this bond at the same rate is equivalent to a
reduction of cost of insurance to the banks.
With respect to burglary insurance, however, your committee
concludes that the margin of profit of the insurance companies
is very wide, and the rates should be reduced. In the report
of May 1, 1914, we quoted such figures as were available at
that time. We have continued to accumulate additional data,
all of which tends to confirm the above conclusions. For in-

stance, the insurance companies during the year of 1913 paid
$1,098,826.00 of claims under burglary policies, and received
$3,403,300.00 of premiums, the premiums received being more
than three times the losses paid. For the last ten years the
insurance companies have paid a little more than $6,000,000
of claims under burglary policies, and have received approximately $20,000,000 of premiums; again being more than
three times the amount of claims paid. These figures, however, include all forms of burglary insurance, and are not
limited to the insurance on banks. We have been unable to
obtain from the insurance companies any statement of their
experience with bank business alone, but a further investigation of the losses of the member banks of this Association only
tends to confirm the conclusion of your committee, viz.: that
the losses paid under burglary insurance policies to the member banks of this Association do not exceed five per cent. (5%)
of the premiums paid.
The reason for the low percentage of loss in member banks
of the Association are various. Most of the largest and less
isolated banks are member banks, and their equipment is as a
whole superior to that of non-member banks and mercantile
houses and does not so readily invite attack. Burglars and
Yeggs attacking member banks are more vigorously and
promptly prosecuted. The activity of the Protective Department of the Association also contributes largely to this result.
In our investigation of burglary losses we have found case
after case where the non-member banks have been attacked
and the member banks close thereto have been avoided. For
instance, twelve (12) small burglary losses were reported in
one State last year including a total loss of $9,376.00. Only
two of these were member banks with a loss of only $498.41.
The total loss reported by all member banks for 1913 is less
than $31,000.00.
Your Committee recommends that the insurance companies
writing burglary insurance be again invited to furnish any information or records that will tend to correct or to confirm
our conclusions. Believing these conclusions to be correct, we
further recommend that the matter be brought to the attention
of every State Bankers' Association, and that each such Association be requested to appoint an Insurance Committee to cooperate with this Insurance Committee in an effort to obtain a
proper reduction of burglary rates, and for the performance
of such other insurance service as the conditions of each State
may warrant. Such Insurance Committees have already been
created in a number of States and are co-operating with your
Committee. For instance, the Insurance Committee of the Arkansas Bankers' Association is giving much time and care to the
subject, and recently rendered a most complete and instructive
report to its Association. The Iowa Association has a Committee which is giving particular attention to Burglary Insurance rates. The Wisconsin Association has given much study
to its insurance matters and is co-operating most fully and helpfully with your Committee. We believe that this method of
organization will be the most effective way of meeting organization of the insurance companies, and will bring to the banks
of the country advantages that can be obtained in no other way.
The insurance companies are not disposed to volunteer a reduction of rates; instead, to quote the Chairman of the Wisconsin
Insurance Committee:
I am very certain from past experience with the companies, that if
it were not for your Committee, and the efforts which are put forth
by the members of the various Insurance Departments of the State
Associations, a material advance could be expected at most any time.
ADJUSTMENT OF CLAIMS.
This is a new field of work in which a well informed Insurance Committee may be of great value. Your present Committee has, from time to time, invited the member banks to command any service that the Committee might be able to perform, and requests are being received for help or suggestions
in the adjustment of differences between the bank and the insurances companies.
One bank complained that settlement of claim under a Fidelity Bond was being delayed. Your Committee promptly communicated with the Insurance Company, asking if there was
any reason that settlement should not be promptly made. The
days
Insurance Company explained the delay, and within a few
settlement
the bank advised the Committee that satisfactory
had been made.
Another bank reports that liability for a small sneak theft
the bank
loss was denied by the burglary company, and that
had as a result transferred its patronage to another company,
which had delivered a policy bearing a special endorsement purporting to cover sneak theft losses. Knowing this to be contrary to the rules of the insurance companies, your Committee
asked the bank to send the policy in for our examination, and
we promptly pointed out the lack of authority of the company's
agent to attach such endorsement, making the same illegal and
invalid. The bank took the matter up with the officers of the
insurance company, who repudiated the action of their agent
as unauthorized. The matter is still under discussion, but the
point is, that the information furnished by this Committee
helped the bank to avoid the usual error, viz., assuming a protection which did not exist.

BANKING SECTION.
Another bank complains that the surety company furnishing
its bond denied liability for more than a few hundred dollars
of a defalcation in excess of $4,000.00. This is the case referred
to in the early part of this report in the discussion of the endorsement to be used in connection with our copyright bond,
and the questions involved are so pertinent to the work of this
Committee that they merit some space in this report.
The bank claims to have applied to the insurance company
for the copyright bond of the American Bankers' Association,
which it at no time received. It received and accepted from
the insurance company that company's form of bond compiled
fourteen (14) years ago, and containing a clause holding the
company liable only for such loss as might be discovered during the currency of the bond, or within six months after its
termination. This bond was subsequently substituted by another form of the insurance company. A defalcation was discovered more than six months after the first bond was terminated, but, with the exception of a few hundred dollars, all
of the defalcation occurred during the currency of the first
bond. The insurance company denied liability for all of the
loss except the few hundred dollars occurring in the currency
of the second bond, but offered the bank the additional salvage
collected. Your Committee, with the assistance of the General
Counsel of the Association, has taken the case up with the insurance company looking toward such better settlement as may
be obtained.
The point clearly brought out in this case is the danger of
the restrictive clause limiting the time within which losses
may be discovered. The copyright bond of the Association contains no such restriction, and the additional endorsement referred to earlier in this report contemplates the extension of
time within which loss may be discovered as to acts committed during the currency of the previous bond.
So, in the investigation of case after case under bonds and
burglary policies, your Committee has found that differences
existed sometimes because of the bank's misrepresentation in
warranties, or delay in notice of losses, or contributory negligence facilitating the accomplishment of the theft, and sometimes there have been found cases of delay on the part of the
insurance companies in their settlements, occasionally misrepresentation of policy forms, and almost always a desire to
furnish the bank some other contract form than the copyright
forms of the Association. Your Committee recommends that
an investigation of each case involving differences between the
banks and the insurance companies be continued, and a special
report to be made upon each case involving any material point
of interest, or involving any unusual settlement. This Committee further recommends that all member banks examine
their existing contract forms very carefully, and wherever they
are not the copyright form of the Association that the advice
of the bank's attorney be obtained as to a change to the copyright form. Your Committee also invites inquiries at any time
from the member banks, and has always been prepared to, examine the forms of contracts used by the banks and make recommendations thereupon.
RELATION

co THE INSURANCE COMPANIES.

Your Committee has endeavored at all times to be fair and
impartial in its relation to the insurance companies, and for
the most part has enjoyed very courteous treatment.
However, as the field of the Committee's activity has broadened, there has developed a definite degree of resistance on the
part of the insurance companies. For instance, your Committee welcomed the co-operation of the Burglary Association
in
the preparation of the new burglary policy. The whole subject
was fully discussed with representatives of the Association,
who have promised us frequently since last February a
report
outlining the views of the Burglary Insurance Companies as
to
contemplated improvements of the policy contracts, reduction
of rates, etc., but up to this time no such co-operation has
been received. Again, a disposition is shown by the bond companies to discourage the use of the Association's copyright
bond. One insurance agent informs this Committee that his
company will issue the bond when requested, but instructs its
agents not to take any active part in its promulgation. Some
of the insurance companies limit the bonds to banks of
$25,000.00 capital or over, and with three employees or over.
Wherever this objection is raised, your Committee will upon
application furnish the names of the insurance companies that
do not impose this restriction.
Other evidences of resistance to the work of the Committee
appear from time to time, but your Committee has endeavored
to assume in each case only such position as might be fair and
just, and has at all times been careful of the interest of the
insurance companies as far as the welfare of the member banks
would admit.

1 29
PUBLICITY.

In addition to all of its other work, your Committee has
from time to time announced its willingness to furnish information, opinions or other insurance service that might be desired
by the member banks, and the responses to this .
invitation
are growing both in number and diversity, and the most satisfactory acknowledgments of service are continuing to be received. Of course, only a small part of the entire membership
has called upon this Committee for service. Realizing that
practically an unlimited field for such special work lay before
us, we have taken advantage of such opportunities for making
public the Committee's work as the limited funds at the Committee's disposal would permit.
A number of member banks, approving the Committee's work,
have from time to time assisted in the distribution of 00,000
pieces of printed matter, outlining the Committee's work by
using them as mail enclosures, and to these banks your Committee tenders its grateful acknowledgments. We recommend
that this plan be continued through which fifty or one hundred
thousand copies may easily be distributed among the banks of
the country without great cost.
Several addresses have been made by members of the Committee and the Committee's Secretary before State Association
banks, and in each instance the greatest interest has been
shown and the Committee's opportunity for service increased.
In addition to our recommendation appearing earlier in this
report regarding an Invitation to each State Bankers' Association to create Insurance Committees, we recommend that the
work of this Committee be presented in person by some of the
Committee, or in a paper specially prepared in each case, to
each Convention of State Bankers' Associations.
We further recommend the use of the columns of banking
and insurance papers and journals wherever invitations may
be received from such publications.
CONCLUSION.

A great deal of time and study and work have been given by
every member of this Committee to the intricate and technical
and academic questions involved in the work, and from the
experience and knowledge so obtained, we respectfully urge, in
addition to the recommendations already appearing in this report, the following further recommendations:
First: A Committee on Insurance should be contined by this
Association, and its authority and powers broadened to follow
out the uncompleted work referred to in this report, and to
take up and treat with new questions that are continually being
presented by reason of the ever recurring changes in the insurance world. The insurance companies are organized in various associations, through which uniform rates are promulgated
and uniform rules are adopted for the guidance of the insurance
companies. These associations are created for and work for
the interest and the well being of the insurance companies.
To meet this conditioh the American Bankers' Association
should continue an Insurance Committee, or organization made
up of members that are most experienced and best equipped for
such service.
Your Committee therefore recommends that the Insurance
Committee of the American Bankers' Association shall be and
is hereby created a permanent Convention Committee. That
the Committee shall consist of live members, all officers of
banks, representative as near as may be of the various sections of the country, and that no bank officer who is connected
with any insurance or surety company as officer or shareholder
shall be eligible to membership upon this Committee; members
of the Committee to be appointed annually by the President of
the Association, and to have power to employ such expert and
other assistance as it may require, but to incur no expense or
liability beyond the amount annually appropriated for that pur.pose.
Second: A larger appropriation should. be made for the continuance of this work. Your present Committee has accomplished in the last twelve months the work outlined in its report to the Executive Council, May 1, and in this report, at a
total cost of $3,798.48, being $1,200.00 less than the appropriation provided. The recommendations contained in this report
contemplate, however, a wider field of activity, necessarily involving a larger expenditure, and it invariably follows that
such additional work will be restricted or broadened in proportion to the funds available.
Your Committee desires to acknowledge with thanks the very
hearty co-operation and assistance rendered by the General
Secretary and General Counsel of the Association and the Secretaries of the various State Bankers' Associations, and particularly the indefatigable labors and expert services of the Secretary of the Committee.

Detailed Report of Proceedings.
FORTIETH ANNUAL CONVENTION, HELD AT RICHMOND, OCT. 13, TO OCT. 15, 1914.
FIRST DAY'S PROCEEDINGS.
MORNING SESSION,
Wednesday, October 14, 1914.
Forenoon Session, held In the Auditorium of the Jefferson
Hotel, on Wednesday, October 14, 1914, at 9.30 o'clock.
THE SECRETARY: If Vice-President Law is in the audience, I
wish he would please come to the platform. We have not heard
from President Reynolds.
As Ur. Law is not in the audience, if it is the wish of the
Convention to proceed, I will call Mr. Goebel, of Kansas City,
Kansas, to preside until the president or vice-president appears.
It is now 10.30.
The meeting was opened by Mr. Goebel in the Chair.
THE CHAIRMAN: Gentlemen and members of the Convention
of the American Bankers Association, you will now please come
to order.
All will please rise while the Rev. Dr. Collins Denny, Bishop,
Methodist Episcopal Church South, Richmond, will invoke the
Divine blessing. •
pl:AYER.

Ds, DENNY: Almighty God, our Heavenly Father, help us to
appreciate that Thou art our Father, that Thou art our Heavenly
Father. save us, we pray Thee, from the folly of forgetting Thee.
We are so prone in the rush of our little affairs to overlook our need
of Thee, and very oftep we are lifted up into a pomposity, which is
always characteristic of ignorance and of egotism.
Now, Ion', help us, we pray Thee, to recognize, in our weakness,
in elm lack of wisdom, in our constant problems, that we are called
upon to face and for the solution of which so often we are utterly
unequipped; help us to realize that we are dependent upon Thee, and
to turn to Thee, and to lean upon Thee, and to have such relations to
Thee that Thou mayst come into our lives with the help that we need,
with the light that is necessary for us on the path that we pursue,
with the clearness of vision and with the determination of purpose that
ought to characterize us in all the work that is laid upon us in the
life that we live.
We have thought, 0! Lord, that we were very independent; we
thought that we were self-sufficient, and we have been rudely awakened
by the difficulty that has arisen and the war that has blasted other
countries; we have been rudely awakened to see how much dependent
we are one upon another, and how our seeming self-sufficiency has
really not been well based.
Now, we come to Thee with great thanksgiving, that Thou hast
given us a day of peace in this, our land, blessed by the name of the
most high God, and blessed by the name of the prince of peace; that
in this talr land, for some reason or other, Thou bast blessed us with
this mighty blessing.
0! Lord, God, spread out Thy wings, we pray Thee, over us, and
continue to us the peace that we now enjoy. May we be those who
give attention to Thy word and heed Thine admonition, and seek peace
and pursue Thee, and may the Lord bless us with continual peace in
this, our fair land; and help us to see, we pray Thee, that this peace
is not given to us because of any merit or worth of ours; it may be,
0! Lord, that Thou hast looked for fruit upon our lives all these years,
and just as the husbandman looked upon the fig tree and found only
leaves, and was about to cast it out until there came the word to dig
about it and to fertilize it. that one more opportunity might be given
of
to it: so, 0! Lord, it may he that Thou art giving us this term
Test and our quiet and our freedom from alarm that we, too, may be
somewhat restored to that fruit-bearing
dug about and fertilized end
nature which ought to be true of all of us.
Now, 01 Lord, bless •the lands across the sea; come to the troubled
hearts; come to the stricken souls; come to the blighted lives; come,
we pray Thee: 01 Lord, and lay Thine hand upon the passionate
hearts of men; and just as Thou didst face the storm upon the lake
in the years gone by, and say to its angry waves, "Peace, be still,"
until every white-capped wave rolled by, up to Thy feet with the
quietness and ease of lambs, so may God say to the warring nations
abroad, "Peace, be still," until all again may be quiet and the blessing of God may shine once more upon the Nations.
Now, Lord, come and bless these Thy servants. They bear large responsibilities. The comfort and the happiness of untold multitudes
are in their hands. Merciful God, help them to see how. they do not
live unto themselves, and may they live each for all and all for each,
with a patriotic devotion, and a manly devotion, and a Godly devoof their country, and to
tion to their duty and to the upbuilding
share the favor of the most high God.
Forget our sins. Number us among Thy people. Write Thy name
We ask for Jesus' sake. Amen.
upon us and claim us for Thine own.
REV.

•

(President Reynolds here took the chair.)
PRESIDENT REYNOLDS: Gentlemen of the Convention, I regret
provided here has been so extravagant
that the entertainment
affect my throat, and I found it
and the weather so damp as to
the doctor before coming here,
necessary this morning to. visit
on time.
accounts for my not being here promptly
which
addresses of welcome. I take
will now listen to the
We
Henry C. Stuart, Governor
pleasure in introducing the Hon.
of Virginia.

Address of Welcome, by Henry C. Stuart, Governor
of Virginia.
MR. PRESIDENT AND MEMBERS OF AMERICAN BANKERS ASSOCIATION:

If Virginia hold valid title to the reputation for hospitality which
she has so long enjoyed, I feel sure that reputation would be enhanced if you, our distinguished guests, could realize, or if I, speaking for Virginia, could adequately express the cordiality of the welcome which is yours to-day. The pleasure we feel comes not alone
from the consideration of the vast and well-nigh inconceivable power
which is wielded by this association, a power measured by the control of fifteen billions of dollars of money and credits, .but from the
contemplation of the marvelous genius which has developed and holds
under masterly control this, the mightiest financial force that has
ever been wielded by the hand of man.
I was told by a prominent official of your organization that I would
be expected to talk about Virginia. That subject, as some of you
may know, has been for a long time a favorite theme for Virginians.
It was suggested that Virginia was so rich in history as to supply
any material needed for this occasion. I shall deal somewhat in history, but it will be so thoroughly modern as to be contemporaneous.
We love to dwell on the proud traditions and sacred memories of a
great Commonwealth, but knowing that these are secure in the hearts
of our people, we feel that their greatest value to us comes from the
elevating and ripening influence which they shed upon the standards
and ideals of to-day.
I venture to point to some of the things which Virginia has acsince this
complished during the fourteen years which have elapsed
aggregate
Association last met in this, our capital city. While the
United
banking resources of the National and State banks of the
by six billion,
States, not including Trust Companies, have increased
same reseven hundred and fifty million dollars, or SO per cent., the
Richsources in Virginia have increased 130 per cent. The City of
inmond, in the same period, but mostly in the last six years, has
practically
creased, in National Bank resources alone 238 per cent., or
large. Of the
at three times the rate of increase of the country at
twelve Federal Reserve Districts, District No. 5 has a little more
than one-twelfth of the population of tile country, and contains at
least four of the most rapidly developing States in the Union.
While we are extending felicitations on the great work which has
been done in the nation, it seems not inappropriate that reference
should be here made to the conspicuous enterprise and ability of the
bankers of Virginia, as evidenced by their financial growth and
strength. To whatever chapter in the history of Virginia we may
turn, we can find no men who have more signally illustrated their
capacity for important public service than those who have guided the
financial institutions of Virginia in the past decade. It is a gratifying fact that perhaps the most important legislation ever enacted
by Congress with respect to the currency, was drafted by two Virginians, one an honored representative from our Sixth Congressional
District, who is soon to address you, the other a Senator from his
adopted State of Oklahoma; both ably assisted. In some of the foundation work by another Virginian, transplanted to the State of New
York.
The honorable place which Virginia holds in the financial councils
and authorities of the country has not come to her without reason.
It is but the fruitage of years of poverty and adversity, the lesson
learned in the stern school of necessity, the reward of self-discipline
and sacrifice, the recompense of patience and frugality; all uniting to
bring us to a financial status which has even surprised ourselves.
We have used the hard conditions of the past as a springboard from
which to leap into a position of comparative wealth and importance,
and which could not have been ours without the utilization of every
opportunity that has come to us as a people.
I shall not attempt to recount any of these hardships and difficulties, but the condition of the South when she started out upon her
new career may be illustrated by an ancient legend—the Goddess of
Fortune called before her three men, a Catholic, a Protestant and a
Jew, and to each promised whatever he might desire. The Catholic
chose Fame. "Fame shall be yours," said the Goddess. The Protestant chose Riches. "Riches shall be yours," said the Goddess. The
Jew, seeing that Fame had been given to the Catholic and Riches to
the l'rotestant, when asked what he would choose, said: "I'll just
take the address of that Protestant." So it was with the South after
the war; stripped of both fame and riches, except in memory, she
had to content herself with the address of the men who had the money.
and we have very recently reached the point when we flnd our own
address somewhat in demand in some quarters.
We are reminded that this, the fortieth annual meeting of your Association, is the last to be held under the old order, and is upon the
*very threshold of the new. This being true, the deliberations of
this meeting must be of the most far-reaching importance. The banking interests of the country are to grapple with new questions and
confront many new conditions. It is a source of pride and an evidence of strength in our institutions that the banking interests of the
country have so promptly, cheerfully and patriotically accepted and
acquiesced in the changed relations between the Government and the
banks, and, in a measure, between the banks and the people. Without
commenting in detail on the nature of these changes, I desire to express my own belief, and I think the belief of the people generally,
that the net results to the Government, to the banks and to the geopie will be a better understanding, each with• the other, and a gradual knitting together of all in interest and sympathy, so that the
entire financial structure will rest on the secure foundation of mutual confidence, public and private. No better evidence of this can

•

BANKING SECTION.
be found than in the steadiness and courage with which our financial institutions generally_ have met and discharged their appropriate
funeticfns in the face of a foreign situation, which, under conditions
of mutual distrust, might have led to disaster to us all. The frightful struggle now raging across the waters might be a disturbing factor but for the assured soundness of our monetary system, coupled
with the wise and statesmanlike policy of a National Administration
which plucks from the nettle, danger, the flower of safety, rather than
learn by the sword the bitter lesson of the value of peace. True it
is, that European disturbances are casting their shadows on some
branches of American commerce, a condition recognized as requiring
patient waiting, but according to all the lessons of history and of
human observation, we should find ourselves, when the smoke of battle shall have lifted, in a position of relative advantage, commercially and financially, which should satisfy the most advanced prophets
of optimism. It is not too much to hope that the curtain which we
trust will soon fall upon the bloody drama now occupying the European stage, will rise again, and when it does that the scene will be
shifted to the Western Hemisphere, and on that great stage we shall
see the mighty hosts of peace eager to bind up the gaping wounds of
war, to weld together the bands that have been broken asunder, to
heal the scars that have been left in the path of the destroyer, and
to build upon the ruins of war a temple of peace for all the world.
To the great financial institutions of the country this noble host will
look for the sinews of peace, which are no less essential than the
sinews of war.
We are especially gratified that in this hour of just pride in your
great achievements and of intensity of interest in the future that
awaits us all, you have chosen the capital city of the Old Dominion
as the place for your important deliberations.
Gentlemen of the American Bankers' Association, on behalf of all
our people, I once more extend you a hearty welcome to Virginia.
PRESIDENT REYNOLDS: I take great pleasure in introducing
Hon. George Ainslie, Mayor of the City of Richmond.

Address of Welcome, by George Ainslie, Mayor City of
Richmond.
•
MAYOR AINSLIE: Mr. President and Gentlemen of the American Bankers Association, I was very glad to hear President Reynolds' explanation, and to know that it was only 'his throat and not his head
that was sore.
I read some time ago an address delivered by the Comptroller of the
Currency, Mr. John Skelton Williams, who is a Richmond man. The
address was delivered to the Indiana Bankers Association. In it he
unblushingly confessed that Virginians were very much given to the
habit of boasting about themselves and claiming everything in sight;
and he proceeded to claim for Virginia about everything that the Indiana Bankers Association and their membership had ever done. I
never have understood why people thought it was necessary for Virginians to boast about themselves. You do not have to boast about
anything that you can prove by the Bible. The position, the condition, the standing of Virginians, according to one authority, can be
and is established by the Bible. A short time ago an old negro
preacher up in Virginia was preaching to his congregation, and, in
order to impress upon them their duties and responsibilities, particularly as Virginians, he appeared to read out of the Book: "There are
four chosen tribes of the Lord, and, whatever may happen, them
tribes is sure of salvation. It don't matter how much they may be
scattered, when the good day comes the members of them four tribes
is sure of final and complete salvation; and them tribes, listen to me,
my brethren, is the Huguenots, the Hottentots, the Abyssinians and
the Virginians."
So that while one's position both here and hereafter is fixed by such
high authority, I do not see any reason for taking up time to boast
about it, nor shall I take up your time to boast to you about the city
of Richmond. But my pleasure and pleasing function is, in the name
of time people of this city, and on the part of the people of this city,
and in addition to the welcome that has been extended to you by the
Governor of Virginia, to extend to you a wafm and cordial welcome:
to welcome you to our city; to welcome you to its traditions; to welcome you to its hospitality; to an acquaintance with its people,
which
I hope will develop Into a real and true friendship, and to wish for
this Convention that its deliberations may result in pleasure and profit
to its members, and through them to the people of this whole nation,
whose servants you are.
PRESIDENT REYNOLDS-: Gentlemen of the Convention, I have
the very great pleasure to introduce Col. John B. Purcell,
President of the Richmond Clearing House Association.

Address of Welcome, by John B. Purcell, President of the
Richmond Clearing House Association.
COL. PuRcELL: Mr. President and Gentlemen of the American Bankers Association, I am glad that I am accustomed to the word
"Banker," and have not classed you, as the Governor did, among
the "liar."
It is said that nowhere shines so brightly the sun as in Virginia.
I hope we will be able to give you a sample of other weather before
you leave, to show you that nowhere does the rain fall so gently as
in Virginia. We want to show you all conditions of climate, and we
want to welcome yon to our delightful sunshine, our gentle rains, and
to our hearts and our homes.
It is said that we Virginians, and Richmond people especially, are
very boastful and sentimental. Let me tell you that in Richthond,
at least, we endeavor to make good use of that sentiment, and when
our fevered brows are o'ereast with deep thought and we have problems to confront, we find it is a great relief to Us to go and stand
where Patrick Henry lit the torch of liberty in this country, or before
the bronze image of Washington and his compeers, to drink inspiration
of patriotism; or perhaps before the effigy of Lee we remember
the tramp of his legions as they passed through Richmond to strengthen
the thin, gray lines about us. To all of these we welcome you, that
you should feel that these things of which Virginians boast, that these

131

monuments of history, of tradition and sentiment, are not ours alone.
We are but the custodians of them. They belong to the great American nation. We are not proud of them petsonally; we feel that they
are but incentives for this generation to do in their time and day
what our forefathers did for this nation in their times. We bid you
welcome to your own, and that you may seek to drink inspiration of
patriotism at the same time that you are laboring with the greatest
problems of finance that have ever confronted this nation since its
beginning. We invite your surcease from care and thought, and that
you will, like us, go to these points of interest, and there remember
that they, though in Virginia's care and protection, are as well in
the care and protection of this whole country. I welcome you, gentlemen of the American Bankers Association, to these and to all the
hospitalities, traditional and actual, that we have. We want you to
feel at home. We want you to go home with a feeling that in many
instances you have visited the home of your fathers; that if you are
not descendant from Virginians, as many of you are, you have, at
least, come to the shrine, to the cradle of American liberty.
Here upon our shores—and we propose to take you there—is the
sight of the first English settlement in this country; and we invite
those who trace their traditions from the Pilgrim fathers to believe
that we think that they, too, have a history equal to Virginia; that
they, too, chetish that history, and that we two together have been
the formation of this great American people.
We welcome you, gentlemen, to our hearts and to our homes.

Response by Arthur Reynolds, to Addresses of Welcome
and President's Annual Address.
Governor Stuart, Matior Ainslie and Colonel Purcell:
Your cordial words of welcome and the kindly sentiments you have
conveyed have indeed touched our hearts and make us feel very happy
that this convention has been held in the beautiful and historic city
of Richmond.
It has occurred to me that underlying all you have said there was
that generous hospitality so emblematic of the Southern people and
nowhere in this wonderful section of our common country is its homelike kindness more noticeable than among •the people of this city and
of the great State of Virginia.
The cavaliers who landed at Baltimore did not confine their sentiments and characteristics to any boundary lines, and Virginia and
Richmond hold a just pride in their old and honored families.
The modern Richmond breathes the atmosphere of the New America
and looks back with gratification upon the roll of honor of such historic characters and old familiar family names as Madison, Monroe,
Randolph, Spottswood, Marshall, Mason,' Lee and Washington "of
Northampton and Virginia." The entire nation joins with Virginia
in paying homage to these sturdy characters whose influence upon our
civilization and development were so marked.
In and around this city have occurred some of the most stirring
scenes in American history which have long since gone down as an
epoch in the wonderful progress of a country destined to occupy a
position of great prominence in the respect and confidence of the
civilized nations of the world.
Your words of welcome and generous expression of good will are
fully appreciated, and I am sure I voice the sentiments of all those
present when I express the hope that the memories and honors of the
past, of the people of Richmond and Virginia, will ever continue untarnished, and in the full enjoyment of a prosperous present you may
look forward to an inviting and successful future.
Those of us who had the good fortune to attend the former convention of the American Bankers Association held in this city, will long
remember the splendid entertainment extended to us at that time, and
we have looked forward to .our meeting this year with a great deal
of pleasure.
We thank you for this welcome and feel sure our stay among you
will be one of profit and enjoyment.
ANNUAL ADDRESS.
The American Bankers Association is recognized as one of the most
important and potential voluntary organizations of the present time.
It is, indeed, an honor and a pleasure to be permitted to preside
over this meeting on the fortieth anniversary of this great Association.
I feel that the membership is to be congratulated upon the wonderful
growth and progress that the Association has had.
I predict that the work has only begun, and in the future its influence will be exerted as a still greater force for good.
During the past year your Association has continued to show its
usual progress and development of those activities which its permanent
policy has proven beneficial, not only to the banking business, but in
its relations to the public.
Upon the membership of any organization or association depends its
success or failure. It is not only a question of members, but more
that of purpose and the character of those who join together in a single body for common good.
That the American Bankers Association has continued to grow and
become more useful, not only to its own members, but to th0 nation
as well, is an indication that its inception was grounded in correct
principles and that its policies are enlisting popular support.
With a membership now of about 15,000, I feel the Association is
to be congratulated upon the increase which has been made during the
past year, for only a limited number of banks may become members,
and our membership is already very large.
The wisdom of the creation of the Executive Council has been demonstrated through a successful experience of many years, and the work
of that body (luring the past year has called for more than ordinary
responsibility, which its members have fully assumed.
The activities of all the sections and committees and commissions
of your Association have, during the past year, been maintained at
their former standards of efficiency; and their work has not only met
with the approval of the membership, but has also engaged the
attention of the people; and in view of the fact that the Secretary's
report,
as well as the reports of these bodies, cover full details of the
progress
made by these various branches of the organization, I deem it
unnecessary to refer to them in detail.
Your General Secretary has been industrious and
energetic in the

132

BANKERS' CONVENTION.

conduct of your affairs, and is entitled to your gratitude and commendation.
In my connection, extending over a period of years, with the Association, I have always been impressed with the spirit of co-operation
and loyalty exhibited by the members and the various sections and
committees, and never more so than during the year just past, covering my official relations with the Association, and I desire to acknowledge the splendid support which you have extended to all of the Administrative Officers of the Association.
Among the bankers of the country, and especially at the meetings
of your Association, the principal topic of interest and discussion for
years has been the one relating to the question of so reconstructing
our financial system as to make it safe and serviceable for modern
business requirements.
The Federal Reserve Banks now in process of formation have enlisted the support of all the National Banks of the country, by reason
of the provisions of the act, which compelled them to subscribe to the
stock of Federal Banks or forfeit their charters, and, notwithstanding
the differences which have existed, the National bankers have submerged their opinions and are extending the system a cordial support.
A limited number of banks and Trust Companies organized under
State laws have also come into the system, but not to the extent necessary to warrant the anticipation of that complete unification of our
entire banking system so long desired.
All those banks who have joined are giving the system their hearty
support, but only the wisdom of management by the directors and
officers of the various Reserve Banks, and of the Federal Reserve
Board, can insure the success of the experiment.
It was asserted by some during the discussion preceding the enactment of the bill that the withdrawal from the channels of trade of
the large sum necessary to capitalize the Federal Reserve Banks, as
well as the reserve required to be deposited with them, would work a
disastrous contraction of credit.
On the other hand, it was pointed out that the privilege the member
banks had of rediscounting with the Federal Reserve Banks would
at once relieve the situation, and hence no contraction of credit was
to be anticipated.
Those in charge of the measure, however, yielded to the advice of
the bankers, and reduced the percentage of subscription, and spread
the deposit of the reserves over a period of thirty-six months.
The principal object in view by the originators of the plan was to
add stability to our banking by devising a system that would alleviate
the periodical stringencies to which business in this country was subjected, and to prevent those disastrous panics which followed. Any
operation under the system which by an immediate return to the
channels of commerce by the rediscounting plan, to prevent the contraction incident to the withdrawal of so large a sum from business,
would, to that extent, defeat the ability of the Federal Reserve Banks
to relieve any stringency. It seems to me that if these banks are to
be always in a condition to ward off disaster that we will, at the beginning, be compelled to submit ourselves to some contraction. To
hold both positions is Illogical, if not impossible.
It may be said that the reduction in the reserve requirement of the
National Banks under the new law will release funds to alleviate the
strain; and so, indeed, it will, if the banks will use them for that
purpose.
It may, however, be pointed out here that a statutory reserve is not
necessarily a safe reserve, as the reserve requirement of every properly managed bank depends upon the character of its business rather
than upon legal enactment.
The rule of the banker must be "safety first," regardless of contraction. He owes this duty to both his depositors and stockholders.
What, then, will be the course of those managing the Federal Reserve Banks? They must cause a contraction of credit if they keep
impounded the means to at all times relieve distress, and if they rediscount at once and freely, they deprive themselves of the ability to
do so.
It will require rare wisdom, indeed, to meet so contradictory a situation.
If we had any assurance that the Federal Reserve Banks would
hold large deposits aside from those which the Government may place
with them, there might be a workable margin, but as both the capitalization and deposits of the reserve are forced, I see no inducement
for member banks to keep active accounts with the Federal Reserve
Banks beyond the amount of the required reserve. Their commercial
relations with the other banks of the country will always be more
productive, and at the same time conform to the natural trend of
business; besides which they now receive interest on their daily balances kept with their correspondents.
The expansion of credit in the operation incident to rediscounting
by the Federal Reserve Banks will become apparent immediately upon
its consummation, and by the injection of the notes at the same time
expand our circulation.
I have not yet heard any argument advanced which justifies the
conclusion that they will be as rapidly retired when they have
served the purpose of issue. Under present methods, if the customer
of a bank obtains the use of credit, whether it be an individual, another bank or corporation, the extension of credit takes some form
of a credit instrument which does not remain in existence for more
than a few days and works no increase in our circulation.
To the extent, therefore, that the notes of the Federal Reserve
Banks remain in the hands of the people and in the possession of
other banks they will be redundant.
has
No continued effort to retire any of our circulating medium
have
ever been made since the Civil War. The National Bank notes
Government
shown a steadily increasing volume. The endeavor of the
response to
to reduce the amount of the legal tender notes was in
over
public demand, discontinued shortly after its inception, and
$340,000,000 of this class of currency is still in use.
will
As there is only a partial retirement provided for in the bill it
depend upon the Federal Reserve Banks themselves, and upon the
judgment of their directors to determine when, and to what extent,
they shall prevent undue expansion of the new currency.
With the practicability of the plan admitted the question that naturally propounds itself to those engaged in banking is. How will its
operation affect the profits of their business. Reasoning from the fact
that the Federal Reserve Banks will not enter into competition for

the commercial business of the country and for the reason that they
will be obliged to quote a rate of discount at least as high, if not
higher, than commercial rates in order to maintain the resources necessary to enable them to extend help in need, I believe the conclusion is warranted that in the future, as in the past, rates of interest will be governed by the law of supply and demand.
The Federal Reserve Banks have no way of increasing the supply
of actual money in existence; if they had, they might reduce rates.
Their most efficient help in that connection may at times result from
raising rates to stabilize conditions.
It is only necessary to cite the fact that in those countries which
depend upon their central banks to maintain the stability of conditions which in their experience has prevented those panics to which
we have been subjected, we find those central banks maintaining a
discount rate always higher than the commercial rate in the same
country.
• In England, where banks seldom rediscount with the Bank of England, it maintains the higher rate, and in Germany and France, where
they rediscount more freely with their central banks, the same policy
prevails. All these central institutions seemingly realize that by such
a course only can they harbor their resources.
The benefits of the operation of the new system will become apparent with the lapse of time. It was not enacted to meet a pending
emergency, and too much must not immediately be expected. The
change will be gradual and should be regarded as an evolution in the
banking business, during which the bankers themselves must rely upon
their own resources, and conservation should be the watchword. Any
effort to utilize the rediscounting privilege primarily for profit should
be discouraged.
It must always be kept in mind that to realize the chief object
which Congress had in view the Federal Reserve Banks must always
be ready to extend help; they cannot maintain this position if the
member banks keep them drained of their resources in ordinary times.
One of the deficiencies of our present National banking system is our
inability to establish or maintain a foreign exchange market. The
new system opens the way to supply this long-felt want. While a
single central institution could more easily control the exportation of
gold, by the operation of such a market, yet by proper action the Federal Reserve Board may so co-ordinate the business of the twelve Reserve Banks as to produce the desired result.
If the Federal Reserve Banks will, in ordinary times, invest a large
part of their surplus funds 'In foreign bills, instead of solely in rediscounts to domestic banks, such action will serve a double purpose.
First, it will aid in maintaining our gold reserve, which is the foundation of credit extension, as foreign countries cannot call upon us
for that metal if we force sale of such bills upon their markets. Secondly, the resources of the Federal Reserve Banks, by reason of the
greater liquidity of the foreign bills, will be at all times more ready
to respond to business needs. The limited character of business to
which the Federal Reserve Banks are confined by the act does not
warrant the presumption of excessive profits, and the limitation of the
dividends to 6 per cent, was a wise provision, indicating that they
have not been established primarily for profit.
Such a policy at the same time would furnish a source of profit to
these banks. It is this class of business that is sought by the bankers of Great Britain and its ramifications extending all over the world
have made London its financial center. Bad our financial relations
with other countries been established upon such a basis, and our foreign exchange massed and controlled by a single agency, we would
have been in a position to check the recent outflow of gold. Instead
we were obliged to close our exchange and practically refuse payment.
One feature of the act creating the Federal Reserve Banks, to which
little, if any, reference has been made, is found in that clause of the
law which leaves to the discretion of the Secretary of the Treasury
the continuance or discontinuance of the United States Independent
Treasury system.
It has been popularly supposed that with the opening of the Federal
Reserve Banks, Government funds would be deposited in those banks,
and the independent treasury system and its consequent expense, both
to the Government and the business of the country, would be a thing
of the past.
A careful reading of the law, however, discloses the fact that Its
authors had no such Intention, and that If Government funds are deposited in these banks, or if they are appointed fiscal agents for the
Government, it will be at the discretion of the Secretary of the Treasury alone and that the bill does not provide for the abolition of the
present system.
It is a just criticism of the measure to say that it does not take the
Government out of the banking business, and that it confers upon one
of our Government officials an extraordinary power and discretion, unwarranted by the spirit of our institutions and repugnant to republican principles.
There is no reason why the funds of the Government, taken from
the people by taxation, should be handled in other than a business
method. To avoid the alternate contraction and expansion in the quantity of circulation incident to the collection and disbursement of the
vast sums handled by the Government, they should be deposited and
checked against just as the funds of business institutions are and
beyond individual control. The power here conferred upon the Secretary of the Treasury to control money and credit, if attempted by the
members of this Association, would probably call for a special act of
Congress to curtail their activities.
During the lengthy discussions over the modifications of the Federal
Reserve Act, and especially those relating to the Federal Reserve
Board, the bankers of the country exhausted every effort to obtain that
representation, by provision in the law, to which their interests clearly
entitled them.
Falling in that effort they obtained in lieu of what they should have
had a clause authorizing an advisory council, similar to that in vogue
in Germany.
While the powers of this council are confined to specified activities,
yet from the character and experience of the men who will be chosen
by the directors of the various banks, It should wield an influence upon
the administration of the system that was denied them In its management.
The Federal Reserve Board must convene the Council at least four
times each year; and it has the right to make such recommendations

BANKING SECTION.
in relation to the general affairs of the reserve banking system as its
wisdom may dictate. It may also meet at its own discretion, and has
power to call for the information necessary to keep it fully advised
of events and conditions in all matters relating to the system.
The experience in Germany has been that the advice of its Council
in the conduct of the Reichsbank is rarely refused and generally followed. This result is logical, and as those in charge of the new system become Involved in the intricacies of the financial system of this
great nation they may be glad to avail themselves of its assistance.
Even a political board, when advised by men competent to demonstrate the principles which underlie the difficult problems of finance,
will welcome such help.
The fundamental features of the bill organizing the Federal Reserve
•
Banks are, in the main, sound, and the establishment of the Advisory
0ouncil may furnish the balance, without which the system might be
deficient.
As the various problems in the management of the new banks arise,
others thau those mentioned will, no doubt, come up for solution.
With competent directors of the class already chosen for the banks and
with the Federal Reserve Board already organized, composed of men
both capable and experienced, we may look with confidence for a proper
solution of any difficulties that may appear. None more than the
bankers have for years been earnestly demanding scome change in our
former system; and it may be confidently predicted that their efforts
to make it successful will be at the command of those in charge af its
operations. They realize that legislation on any question cannot be
dictated solely by one set of men or any particular class of interests,
and their suggestions and arguments during the preparation of the
measure were presented forcibly and in good faith.
Now that the step has been taken, I believe they will be ready to do
their full duty in bringing to the country such prosperity as we may
reasonably anticipate under present conditions.
Since our meeting of a year ago questions of serious import have
been up for consideration and solution, and no opportunity has been
lost, either by this organization or by its members, to impress upon
the public the necessity of those sound principles of public policy
which make for stability and ultimate success. The work involved
has been onerous and, at times, not encouraging, but the hope that
right principles and sound business policies will in the end prevail has
permitted no cessation in the effort which has now assumed the task
of enlightenment upon subjects that to many people appear as intricate
and abstruse.
The greater part of the energy exerted in this particular has been
directed toward the many forms of legislation on the part of the general government for control of corporate action. If the tendency had
been in the direction of constructive legislation, bankers and business
men would have been found welcoming the effort. That they have not
so construed the movement is evidenced by their repeated objections and
protests. It would seem that our lawmakers had failed to recognize
the momentous change which has been wrought by the great industrial
expansion which has taken place throughout the entire world, and,
viewing it only from the standpoint of our domestic condition, are
seeking to turn back the tide of progress by repressing the organizations which the evolution of the new condition required for its continuous operation and development, and which have involuntarily sprung
into existence all over the country.
The political.factor in the situation is the stumbling-block to progress
in the right direction. Public opinion, when properly informed, will
not tolerate the continuance of the present program when it realizes
that such a course will handicap this country in its competition with
other nations whose policies are the reverse of ours. In order to establish a theoretical " new freedom," it does not seem to me that we
should be compelled to sacrifice our business progress, surrender our
rights as business men, and be forced to delegate the control of our
own affairs into the hands of government appointees.
The avowed theory of the proponents of this program is to protect
the investor regardless of his right to manage his business for his own
protection; and, in face of the fact that when the control of his business has been invested in those whose selection will devolve upon- political authority, we have no assurance that the experiment will be successful.
While the purpose at the beginning was ostensibly to curb some large
corporations and combinations which were said to be exerting their
power in a vicious manner, now the Idea seems to have
spread and
includes all business.
These attacks have already shown their results; happiness has been
succeeded by discontent; apprehension rules where confidence and optimism formerly predominated.
The continuous and unjust attacks which have been made upon the
banking business by the proponents of our recent forms of theoretical
and scholastic legislation, combined with the pronounced prejudice exhibited by the administration and legislative branches of the Government, have greatly influenced an unfair public opinion.
We are to-day in the maelstrom of uncertainty; State and Federal
legislation for the control of business by bureaus and commissions
under political domination seems to be the order of the day, and the
advocates of this policy are endeavoring to create prosperity by legal
enactment, disregarding those agencies which have heretofore been most
efficient in promoting it. They do not appear to recognize the fact
that the rapid industrial development which has taken place throughout the world has produced conditions which have required radical
changes in business methods.
With this wonderful onward march our country has kept pace; where
formerly individual effort and disjointed interests were the instruments employed, now co-operation, both of capital and the individual,
have taken their niace.
This is the grand transformation which our reformers, failing to
recognize, are seeking to control by a political policy which, if logically completed, will dominate the economic policy of the people—if
It does not go farther and plunge qs into the sea of socialism.
In their efforts to reach a few men who have taken unfair advantage under the new conditions, they overlook the fatal handicap they
are imposing upon the entire business structure of this country, under
which competition with the world at large, already difficult, will be
still further impeded.
If these would-be reformers were pursuing their policy in response
to a great popular demand for such action, they might be justified in

133

such a course. Aside from .the usual expressions and stock promises
of reform that we read every four years in the platforms of all political parties, there is no organized effort for much of the legislation that has already been enacted, or is still under consideration.
The commercial organizations representing the business interests of
this nation have not demanded it and, on the contrary, have protested
and objected, and even labor organizations have confined their activities to those subjects which only concern their present interests.
The protests of the bankers and business men against this Invasion
of their liberties has not only gone unheard, but organized effort to
modify some of the drastic measures proposed has been openly referred
to as "conspiracy to influence legislation."
I cannot admit that legislation upon any subject is so sacred or
beyond criticism that the people who are the masters of those who
must enact it shall be debarred the right to be heard, and believe that
the business interests have a special claim on the attention of the
lawmakers at this time. If the right of appeal is by such tactics to
be denied to any class of our citizens, may they not justly fear the
good intentions and doubt the wisdom of those who assume to do so?
I do not believe that the people have abandoned those principles
underlying our economic structure which have enabled us to attain
our present position in the business of the world.
I do not believe our law-makers desire to champion the cause of
those who demand a redistribution of property, by law, if possible, or
by other means, if necessary, but a logical continuation of their present course will ultimately place them in that position.
Experiences such as we are going through have been met by other
nations; the rights of a people have in the past been granted by a
stroke of the pen, but the liberties of a nation have never been thus
suddenly subverted, and it is from gradual encroachments that such
a danger comes.
But what of the remedy?
Shall what I now say to you on this important problem be simply
put upon record as another of those unheeded protests that have pmceded, or will the bankers and the business man take heed and take
action through the fall exercise of their rights as citizens?
The time has come when we must take a more active part In the
practical politics of the day, for the banker and business man to wield
that influence in our Government to which they are entitled must make
more effective use of their citizenship in the future.
Heretofore we have contented ourselves by forwarding or adopting
resolutions; now we must resort to Individual effort and must ourselves
take part in the work instead of relying solely upon the Chamber of
Commerce, the local Board of Trade, or the State Bankers Association.
These organizations have done well and from their representative
character are justly entitled to be heard, but such work, to be effective,
must be supplemented at home by the citizen, the man from whom the
law-maker holds his commission. Denying the assumption that the
business man has no place in politics, let him now find his true place,
and by an independent, fearless exercise of his rights as a citizen,
acquire his share of influence in the making of the law, as well as its
administration.
In a democracy, where the majority rule, ballots are the most effective argument with the office bolder. The influence exerted by this
Association and the various State Bankers Associations throughout the
country, supplemented by the individual efforts of the bankers and
business men in their own localities, constitute a force that, properly
directed, may yet give us that share,In the making of the laws to
which we are entitled.
This country is dotted over with small country banks, usually managed by men of prominence in their own communities, and their appeals
to the home Congressman may be made more effective by active participation in his campaigns than by a passive acceptance of the gifts
that fate may otherwise bestow.
Regardless of the activities of the reformers who would have the
people believe that the banker is not to be trusted in matters in which
he is directly interested, I feel sure that the general business public
with whom the banks come in close touch recognize in the banker a
force for good in the community in which he resides, and the daily
expression of those human qualifies which make for confidence and
honest handling of affairs have established the banker as a friend of
the people and worthy of any trust.
How absurd the idea that the banker could hope to thrive under any
other condition than the prosperity of his customers; as the people
succeed so does the banker. The broad competition in the banking
business in this country would alone compel fair treatment. No other
country in the world enjoys so many financial institutions, organized
very largely to care for the requirements of individual communities.
The bankers of the country should strike out boldly and fearlessly,
and should refuse to permit the imputations that have been laid upon
them and their business to go unchallenged. They should not allow
the politicians to use them as a buffer for their own selfish purposes.
• At no time in the history of our great country has there been such
a necessity for cautious and conservative action as to-day, and progress
can only come through the creation of a safe and sane public opinion.
The American Bankers Association has done much to aid the general
situation, and I feel is to-day equipped, both in intelligence and in
force of organization, for a still greater work.
While the executive officers and committees of the Association and
those who voluntarily ally themselves with them have been unceasing
in their efforts to promote and protect your interests, by argument and
personal appeal to those in power, you should not fail to do your part.
Ballots will be found more efficacious than protests; the banker and
business man has an equal right with any other class of citizens to
seek by co-operative action to protect his own business, not by attempted control or undue influence, but by educating the public, which
is entitled to a frank expression of your opinions and judgment, through
which your influence must be exerted.
Business men have too long accepted legislation without protest or
criticism, through fear of more radical measures in punishment
of
their efforts. The time has arrived for positive action by the
business
man in public affairs. Upon the course which you as individuals
pursue
will depend the results which may be secured.
The unsettled business conditions which have existed for
some time,
coupled with the present world-wide disturbance, have
accentuated the
situation, and if we are to have any general prosperity
in the near
future will depend much on whether the attacks upon
business are to

BANKERS' CONVENTION.

134

be continued by our law-makers and additional drastic laws passed to
further disturb the situation.
Even if all the laws proposed and passed were just and proper, it
would be impossible to force so many and radical business changes
without the results which we have experienced.
Indeed, the failure to aid railroads in their reasonable requests has
not only undermined the values of one of the most important investments for savings funds, which will be felt not so much by banks
and business men as by the common people, the salaried man and wageearner, and which in due time will be fully appreciated by the public.
A continuation of this policy will further impair the value of these
stocks nnl bonds in the hands of European holders, who estimate them
in proportion to their earning capacity, thus inviting liquidation of
these securities, which will compel additional exports of gold with its
attendant business disturbance.
The business men of the country are anxious to see the end of the
depressing influence of congressional interference and bureaucratic restriction; they regard present methods rather as tyrannical than liberal.
and no progress toward permanent prosperity is possible under a continuation in the present course.
Gentlemen, I think we will pass the yarious things upon our
program, and I take great pleasure at this time in introducing
the Honorable Martin W. Littleton, ex-Congressman from New
York, and a gentleman well known to you all, and whom I am
sure you will be glad to hear.

The Will of the People, by Martin W. Littleton.
[The address of Mr. Littleton is printed in full elsewhere,
beginning on page 88.]
THANKS TO MR. LITTLETON AND PRESIDENT
REYNOLDS.
Ma. LIVINGsTONE, of Detroit: Mr. President, I move you,
sir, that we extend a sincere vote of thanks to the Hon. Martin
W. Littleton for his grand effort to-day in the presentation of
his views on the protection of property of every class and every
profession, and I ask that the vote be a standing vote.
PRESIDENT REYNOLDS: I will ask you, gentlemen, to signify
your approval of the motion by rising.
(The audience arose en masse amidst great applause.)
Mn. WEXLER : Gentlemen, I would like to offer a resolution
of thanks to the President of this Association for the sensible,
straightforward and fearless manner in which he presented
the matter of encroachment upon the rights of our people and
upon the interference in our public affairs, which we have
heard here to-day; and further, that the galleys of this address
of
be reprinted in pamphlet form and sent to each member
this Association in order that the spirit which underlies his
of
address may be disseminated generally among the people
this country, so that further such interference in public affairs
may at least be stopped in so far as the ability of the bankers
makes it possible.
(Carried.)
AMENDMENTS TO CONSTITUTION.
PRESIDENT REYNOLDS: We will take up at this time the
amendments proposed as set forth in the printed program.
THE SECRETARY (reading):

Report of Committee on Amendments to the Constitution
Relative to Section Membership.
To THE EXECUTIVE COUNCIL:
At the Spring meeting of the Executive Council at Hot Springs last
May, the fact was pointed out that under the Constitution as it now
stands no member of the Association could be a member of more than
one Section and this prevented members from joining both the Trust
Company and Savings Bank Sections and deriving the privileges of
such dual membership. As the result of .discussion indicating the
desirability that every member of the Association should have the
right of becoming members of more than one Section with all the
attendant privileges and full voice in its affairs, save only that there
should be no right to vote for officers of more than one Section, the
undersigned committee was appointed to prepare a suitable amendment to the Constitution to carry out this purpose and submit it to
the Executive Council at its next meeting.
In accordance therewith your Committee have prepared and submit
the following:
Amend Article X. Section 1, by inserting in line four thereof as
printed in the book containing the last annual proceedings after
the word "Section," the words "or Sections whose Constitution
or Hy-Laws permit of such membership," awl in line five, after the
word "interests," the words " provided, however, that no member shall have the right to vote for officers in more than one Section and shall at the time of becoming a member in more than one
Section designate in which Section he will exercise the right to
vote for officers by giving notice to the Secretary of such Section,
which designation cannot be changed until an intervening annual
election"
so that Section 1 as amended shall read as follows:
conSec. 1. Sections of the Association may be authorized or
firmed and regulated by By-Law, for the promotion of the welfare
of the different business classes of the membership, and any member of the Association may become a member of such Section or
Sections whose Constitution or By-Laws permit of such membership as may best benefit such member's business interests, provided, however, that no member shall have the right to vote for
officers in more than one Section and shall at the time of becoming
a member in more then one Section designate in which Section he

will exercise the right to vote for officers by giving notice to the
Secretary of 8114h Section, which designation cannot be changed
until an intervening annual election, and when any Section is authorized by By-Law, the same shall; upon application made, be
established by the Executive Council.
Certain of the Sections of the Association are composed of a special
class of members who are not members of the Association—for example, the Clearing House Section is composed of Clearing House Associations—and in any general provision of the Constitution authorizing
members of the Association to become members in one or more Sections, our Committee has thought It wisest, for the sake of consistency
if nothing else, to provide for membership in those Sections only
whose constitution or by-laws permit of such membership.
A copy of this proposed amendment was submitted to the General
Secretary more than thirty days before the annual session of the general convention, as provided in Article XI, Section I, of the Constitution for action in accordance with such Section.
Respectfully submitted,
J. F. SARTORI,
J. H. MASON,
W. M. VAN DEUSEN,
C. A. HINSCH,
C. E. BURNHAM.
Mr. Goebel moved that the amendment be adopted.
ried.)
THE SECRETARY (reading):

(Car-

EXECUTIVE COUNCIL TO FIX CONVENTION CITY AND TO SET ASIDE DAY
FOLLOWING CONVENTION FOR COMMITTEE MEETINGS.
Amend Article III, Section 2, to read as follows:
Sec. 2. The General Convention of the Association shall meet
in Annual Session at such times and places as shall be fixed by the
Executive Council, and it shall be the duty of the Executive Council to set aside one full day immediately or within forty-eight hours
following the day of adjournment of the annual convention for the
purpose of holding meetings of the Executive Council and the
various Committees. Special sessions of the General Convention
shall be ordered upon the request, in writing, of one-third of the
membership of the Association, or if the general welfare shall require„ upon the request of three-fourths of the members of the Executive Council made to the President, and in either of such cases,
the General Secretary of the Association shall fix the time and
place for such meeting and issue the call to the members.
Note.—Two changes are made in the present Section 2 by the proposed amendment. The first is to confer on the Executive Council the
power of selecting the city for holding annual conventions instead of
such power resting in the general Convention. The second is to carry
out a recommendation made to the Executive Council at Hot Springs
which was adopted by the Council, that there be a full day immediately following the adjournment of each convention for Council and
Committee meetings, as by this method the various committees will
be able to begin the new year's work in a more comprehensive way.
The words "or within forty-eight hours" are inserted to provide for
a situation such as will occur at Richmond, where the Convention will
adjourn on Thursday and a program of entertainment is arranged for
Friday, so as to permit of Saturday being fixed for Council and Committee meetings.
Amend Article V. Section 8, by inserting after the word "immediately" the words "or within forty-eight hours," so that the first
portion of the section will read: "The Executive Council shall meet
in session for organization and other duties immediately or within
forty-eight hours after the final adjournment of the annual session of
the general Convention." etc.
Note.—This amendment is suggested to make the section harmonize
with the amended Article III, Section 2.
Mr. Goebel moved that this amendment be adopted.
ried.).
The Seeretary (reading):
A VICE-PRESIDENT, MEMBER OF NOMINATING COMMITTEE

NATE

FOR

AND

(Car-

ALTER-

EACH STATE.

Amend By-Law fifth to read as follows:
Fifth. Each State shall elect a Vice-President for such State
and also a member of the Nominating Committee for such State
and an Alternate. In each State having a State Bankers' Association such election shall be made at the annual meeting of such Association and certified by the Secretary to the General Secretary
of the American Bankers Association. For each State having no
State Bankers' Association such election shall be held at the time
and place of the annual convention of the American Bankers Association at a meeting of the members from such State called and
presided over by the Vice-President for such State prior to the time
when the newly elected officers will be required to take up their
respective duties. State Vice-Presidents and members of the Nominating Committee shall have the same qualifications as delegates
to the general convention and shall forfeit their office by removal
from the State by which elected or by the loss of any qualification required of a delegate.
Amend Article IV, Section 3, to read as follows:
Sec. 3. The members of the American Bankers Association in
each State shall annually elect a State Vice-President in Ruth
manner as shall be prescribed by the By-Laws. It shall be the
duty of State Vice-Presidents to preside at meetings of the members of this Association in their respective States or at the time
of the annual convention of this Association and to enforce the
rules and regulations of this Association as to such membership.
In the absence of the State Vice-President from any duly called
meeting, a Chairman elected at the meeting shall preside. State
Vice-Presidents shall hold office from the opening of the annual
session of the General Convention first ensuing after their election
until the opening of the annual session of the General Convention
then next ensuing.
Amend Article IX, Section 1, to read as follows:
Sec. 1. The members of the American Bankers Association in

BANKING SECTION.
each State shall annually elect a member of the Nominating Committee and an Alternate in such manner as shall be prescribed by
the By-Laws. It shall be the duty of such Nominating Committee
to meet as soon as practicable after the first adjournment of the
General Convention, assembled in annual session, next ensuing after
their election, at the call of the General Secretary of the Association, and organize by the selection of a Chairman and Secretary
from their number. They shall recommend a candidate or candidates for President of the Association, and a candidate or candidates for Vice-President of the Association, and the Nominating
Committee shall make report of its recommendations so made, to
the General Convention, at any subsequent session of the General
Convention, but prior to the order fixed by programme for the
election of officers. The nominations or recommendations made by
the Committee shall not exclude the name of any person otherwise nominated in the Convention, and under the regular order for
the election of officers any delegate may place in nomination, any
qualified member for President or Vice-President, or both.
•
Amend Article II, Section 7, to read as follows:
The word "State" or "States" as in this Constitution contained shall be held and construed to include the District. of Columbia, Alaska, Hawaii, Porto Rico, the Philippines and the Panama Canal Zone.
Explanatory note:
By-Law fifth is proposed to be amended so that instead of each
group electing a Vice-President and member of the Nominating Committee, each State in the group is given this right, which is extended to all the Territories and Dependencies, for Article II, Section 7, is proposed to be amended by including in the word
"State" all such Territories and Dependencies. Article IV, Section 3, providing for State and Group Vice-Presidents, has been
correspondingly amended, as has also Article IX, Section 1, providing for election of members of the Nominating Committee. In
all these, also, provision Is made for the election of an alternate
member of the Nominating Committee, who may act in the absence
of the regularly elected member. The time and place of election
for all States that have no State Bankers Association is fixed at
the annual convention. A provision is also inserted requiring that
a State Vice-President or member of the Nominating Committee
shall be qualified as a delegate. Such a qualification for members
of the Executive Council is provided in Article V, Section 4.
Mr. Gwin moved that the amendments be adopted. (Carried.)
PLACE OF ANNUAL Megrim) OF SECTIONS.
•

Amend By-Law sixth by adding at the end thereof the following:
No section, except the American Institute of Banking Section,
shall hold its annual meeting at any other time or place than that
of the Annual session of the American Bankers
Association.
Note.—The above is the substance of a motion made
and carried at
the meeting of the Executive Council, October 9, 1913.
To give it
effective force it should be contained in the By-Laws.
Mr. G3ebel moved that the amendment be
adopted. (Carried.)
ADDITION OF GROUP V AND CHANGE IN .Mernon OF ELECTION
OF COUNCIL MEMBERS REPRESENTING GROUPS.
Amend By-Law fourth subdivision (c) to read as
follows:

(c) States having lees than one hundred members of the American Bankers Association within their respective borders and which
are not hereinbefore provided for, shall be grouped as follows, to
wit:
Group No. 1 shall be composed of the States of New Hampshire
and Vermont.
Group No. 2 shall be composed of the States of Delaware and
Rhode Island.
Group No. 3 shall be composed of the States of Arizona and New
Mexico.
Group No. 4 shall be composed of tile States of Utah,
Wyoming
and Nevada.
Group No. 5 shall be composed of Porto Rico, the Canal
Zone,
the Island of Hawaii, the Philippines and Alaska.
Each group, with the exception of Group No. 5, shall be entitled
to one member of the Executive Council. The members of the Association in each State in each group, except Group No. 5, shall have
the right to select in rotation a member of the Executive Council to
represent their particular group. The order of rotation of the States
in each group shall be as above set forth. Such election in any State
having a State Bankers Association shall be in the same manner and
be governed by the same rules of procedure as provided in subdivision
(b) for the election of members of tile Executive Council from States
having more than one hundred members of tile American Bankers Association. In any State having no State Bankers Association, the election shall be made by the members from such State attending the annual convention of the Association at a meeting called and presided
over by the Vice-President for such State at an appropriate time prior
to the organization of the new Executive Council. Any contest arising
from such election shall be heard and determined by the Executive
Council. Provided that a member of the Executive Council from any
State in any such group at the time of the adoption hereof shall be
and remain tile member of the Executive Council for the group to
which his State Is attached until the expiration of his then term of
office as a member of the Executive Council.
Note.—Subsection (c) has been rewritten. The amendment provides
several changes, as follows:
Group 5 has been added. At the Boston Convention (see pages 309312, Proceedings, 1913) the subject of the status of Hawaii under the
new Constitution was brought up, and it was suggested there should
be a new group composed of tile territories of Hawaii and Alaska.
The matter was referred to the next meeting of the Executive Council.
At the meeting of the Council at Boston, October 9, 1913, Mr. Wexler
offered a proposed amendment to the Constitution "that a fifth
group shall be organized composed of Porto Rico, the Canal Zone, the
Island of Hawaii, the Philippines and Alaska." It was pointed out

135

that after this amendment was adopted by three-fourths of
the Council
it would not become operative until approved
by a majority vote of
the next convention; further, that the amendment would only carry
with it the power to have a vote in the making
of nominations for
Presidents and Vice-Presidents, but would not give the group
any representation on the Executive Council until their combined
membership
reaches 100. Tile amendment was unanimously
adopted by the Council. It is therefore inserted as an additional group in the
redraft of
subsection (c).
The proposed amendment of subsection (c) also
does away with the
election of members of the Executive Council to
represent the groups
by conferees. This method has given dissatisfaction
and is impracticable. In place thereof it is proposed that the member of
the Council
representing the group (except Group No. 5, whose combined
membership being less than 100 is nbt entitled to representation
on the Council) shall be elected by the States in tile group in rotation
at the
annual convention of the State Bankers Association in the
same manner as members of the Council are elected from States
having over
one hundred members. The order of rotation of the States
has been
changed from that of the present By-Law making New Hampshire first
In order in Group No. 1, Delaware in Group No. 2 and Utah in
Group
No. 4, because these groups are now represented by members from
these States. Group No. 3 remains the same because therein Arizona
is first named, and the present Council member is from that
State.
Of all the States in the first four groups, Rhode Island alone has no
State Bankers Association. For that reason there is a special provision that in any State not having a Stirte Bankers Association the
election of the member of the Council representing the group shall be
at the time and 'Alice of the annual convention of the Association by
the members from that State.
Mr. Goebel moved that the amendments be adopted. (CarDECREASE OF STATE MEMIIERSIIIP AND COUNCIL REPRESENTATION.
Amend By-Law fourth by adding at the end of subdivision (b) thereof the following:
Provided further that if, after the election of one or more members of the Executive Council from any State, the number of members of the Association in such State shall fall below the number
necessary to entitle such State to all its elected members, the
member last elected shall cease to be a member of the Executive
Council until the membership in the State reaches the requisite
number. In case two or more members have been elected at the
same time, one or more of whom would be ineligible as above, the
determination of which shall cease to be a member shall be by lot
in a way to be provided by the General Secretary.
Mn..GOEBEL : I move the adoption of this amendment, and
in that connection' would state that it is the understanding
that it will not be enforced as to any one State that happens
to be in arrears now, or until the next election.
Mn. GOLDWATER: It Seems to MC this ought to be passed
without any strings on it.
MR. GOEBEL: My motion was to adopt the amendment and
merely incidentally I suggested that this would not be retroactive.
Ma. GOLDWATER: It seems to me if there is nobody here from
Tennessee who desires to object to this, we ought to pass it
without any strings.
MR. ARMSTRONG (of Tennessee): Mr. President, I find myself
and my associates in this rather embarrassing position. We
have been selected by the Tennessee bankers to represent
Tennessee in the councils of the American Bankers Association. The term was for -three years. It is rather embarrassing
for us to appear now as members of the Council if this amendment is adopted, because under this amendment we would be
automatically retired. It seems to me the Association should
define this amendment and say in plain language whether
we
shall serve out the term of three years or retire. I
think the
amendment proposed is wise and fair. However, at the
time
we were elected the quota of membership justified
that election.
MR. HAWLEY : Mr. President, I move that we add this
proviso, that this section shall not apply to members already
elected.
MR. GOEBEL: I accept the amendment.
(The amendment was adopted and the original motion as
amended was adopted.)
THE SECRETARY (reading):
TERM OF OFFICE

TREIASURER.

Amend Section 9 of Article V by adding thereto the
following:
The term of office of the Treasurer shall begin on
December first
following the date of his election by the Executive Council.
Note.—This amendment is suggested for the reason that it
is impracticable immediately upon the election of a new Treasurer
for the
old Treasurer to make transfer of the funds of the Association.
The
date of meeting of the new Executive Council at
which the Treasurer
is elected varies. The new fiscal year of the Association
begins September first. Drafts for dues of members are then sent out and are
in process of collection until November 30th. During this
process it
Is impracticable to make a transfer of funds and the
custom has therefore been established of making such transfer on December
first.
MR. MARLIN: I move that the amendment be adopted.
(Carried.)
TFIE SECRETARY: The following amendment is proposed
by
E. M. Wing of La Crosse, Wisconsin:
PROPOSED DT E. M. WINO, LA Cuomo, Wis.
Amend Section 15, Article V, by adding to the list of committees
the following:

BANKERS' CONVENTION.

136

Development and Educa"(0) The Committee on Agricultural
section:
tion." And by inserting at the end of the
adopThe Executive Council at its first meeting, after the
(G)
"
membership three pertion of this amendment, shall elect from its
from the two-year
sons from the one-year class; three persons
who shall conclass and three persons from the three-year class,
Education
stitute the Committee on Agricultural Development and
membership in the
their
and whose membership shall expire with
shall elect three persons from the
Council and annually thereafter
of
three-year class to fill the vacancy occasioned by the expiration
term. Any vacancy occurring by death, resignation or other cause,
shall be filled by election from the same class for the unexpired
term."
Amend Section 16 by inserting at the end thereof, under the heading "The Committee on Agricultural Development and Education,"
the following:
"(G) The Committee on Agricultural Development and Education shall have in charge all matters pertaining to these questions
and shall report in writing to the Executive Council and annually
in writing to the General Convention."
Ma. H. J. DREHER of Milwaukee: Mr. President, inasmuch
as the Executive Committee reported adversely on this amendment, I move that the amendment be rejected.
Ma. GOEBEL: I second the motion. I shall vote for the motion Of the gentleman not from any desire to take sides in the
little controversy that has been going on, but for the reason
that we have just started to work under our new constitution,
and I should be opposed to adding any more standing committees to the Council until we have worked for a few years longpr
and until we see whether the results which we expect from the
new constitution will be attained and it will work as satisfactorily as we hope.
The amendment was rejected.
MR. LfvfNasToNE of Detroit: I move that we take a recess
until half-past two.
A recess was then taken until 2.30 p.m.
AFTERNOON SESSION.
OCTOBER 14, 1914, 2.30 P.M.
PRESIDENT REYNOLDS IR the chair.
TER CHAIRMAN: Gentlemen, the Convention will please come
to order.
I have the very great pleasure at this time of introducing
the Hon. Charles S. Hamlin of Washington, D. C., Governor
of the Federal Reserve Board. This gentleman is one who is
fully acquainted and known to you all, I am sure, a gentleman
who has been a great student of this question, and one in whom
the bankers have great confidence. I take great pleasure in introducing to you Governor Hamlin. (Applause.)
GOVERNOR HAMLIN : Mr. Chairman, ladies and gentlemen:
It is a very great pleasure to me to be able to come here today in response to your kind invitation. I want first to express the deep regrets of the Secretary of the Treasury and
the other members of the Reserve Board whom you kindly invited, that their duties prevented them from accepting your
invitation to-day.
It is. always a pleasure to me, not only to come before you
and listen to the deliberations of this great Association, but
it is a great pleasure to me personally to come to this beautiful
city of Richmond again. I have been here only a few times,
but some of the most pleasant associations of my life are connected with this city. It is a great pleasure for me to come
and to have the honor of listening and being presented to your
Mayor and to listen to the address of your chief executive,
. It is also a great
the Governor of this great commonwealth
your fellowpleasure to come to the home of my dear friend,
Skelton
townsman, the Comptroller of the Currency, John
in a state
Williams. But I must say I also come somewhat
delegates, the government
of humiliation. The other day the
Washington with
directors of the Bank of Richmond were in
no point—that Mr.
the Board, and I told them that there was
under the deluWilliams and I disagreed vitally, that he was
busithat the Richmond Reserve Bank would be ready for
sion
the Boston Bank would be ready for business, but
ness before
they
the Richmond delegates went back and the next morning
got me on the telephone and said that the Federal Reserve
Bank of Richmond had made all its preparations and was ready
to start as soon as they got word from the Federal Reserve
Board. So I want to pay that appreciation to the bankers of
this great district.
I really feel that an invitation from this great Association
Is equivalent to a command to anyone interested in financial
questions in the United States.

Preparing the Federal Reserve Banks for Opening.
[The remainder of Gov. Hamlin's address will be found on
page 87.]
THE CHAIRMAN: I am sure that every one present appredates very much the talk that has been given by Governor
Hamlin, which will undoubtedly clear up many ideas and be
of great benefit to us all. We are all very glad, indeed, to
have him with us; and I am pleased, in behalf of you, to express our appreciation for his very able talk.

I have at this time the very great honor of introducing a
gentleman to whom the committees of the American Bankers
Association are greatly indebted, and through the committees
the Association itself. This gentleman has been uniform in
his kindness and courtesy to all of the requests for hearings
and conferences that have been extended to him. He is a
gentleman in whom those of us who have come in contact have
the very greatest confidence. We regard him as a great public
citizen, who is attempting to do his full duty, and we feel that
he has accomplished a very great deal; and, while the bill may
not have been all that we expected, or that he desires, yet we
feel that he has been a very great benefit in assisting the
bankers and co-operating with them in bringing about the passage of the very best bill that was possible.
I have the very great pleasure of introducing to you the
gentleman who has had so much to do with the formation of
this bill, the Honorable Carter Glass of Lynchburg, Virginia.
(Applause.)
The,Genesis

of the Federal Reserve Law, by Congressman
Glass.

[We print Congressman Glass's address in full at page 81.]
THE PRESIDENT: I am sure that all of you gentlemen who
have listened to the very interesting talk of Congressman Glass
feel as I do, that he has expressed in a fearless way his honest
opinion. It is expressions of that kind that we need to-day,
and that do all of us good. It is only from this fearless method of interchange of thought on all these subjects that any real
good can come; and I am sure that I voice the sentiment of
every one here when I say that we doubly appreciate the honor
of having Congressman Glass with us to-day in these closing
hours, of Congress when his duties in Washington are so many
and so pressing. I am sure that I can express for you fully
our great appreciation of his kindness in coming here and delivering his address.
MR. DILLARD of New York: May I ask Representative Glass
one question? I think there are many here who feel that there
is liable to be an expansion of the emergency currency. Has the
Treasurer the right to withdraw that under the act?
MR, Grass: My own opinion is that there has been already
an expansion of the emergency currency. In my judgment the
$365,000,000 that have been issued to the banks have not been
required and have not been used. But that is a matter solely
in the discretion of the Secretary of the Treasury.
Ma. DILLARD: There does not seem to be anything in the act
that gives the Treasurer the right to withdraw the emergency
currency if It is found that there is a very considerable overexpansion of the emergency currency.
Ma. GLASS: I will call the attention of my friend to the
provision of the law that imposes ultimately a tax of six per
cent, on this currency, and unless most of the banks of the
country are practising usury, contrary to their State laws,
curthey are not very apt to pay six per cent, on emergency
rency to be loaned out.
Mn. DILLARD: But there is nothing in the act—
MR. GLASS: I do not recall. I am not as familiar with the
Vreeland-Aldrich law as perhaps I should be. I was at the
time it was passed, but I am not now. The tax is supposed to
drive the currency back.
Ma. DILLARD : May I say one thing more, gentlemen? The
Interstate Commerce Act was passed in 1887. It has been in
existence over 27 years. At the present time no minority
stockholder of a railroad company has the right to appear before the Interstate Commerce Commission. There are numbers
of minor roads that for years have been manipulated by the
major roads. The major roads have controlled the rates of
these minor roads, and have diverted those rates to the major
roads, and the minority stockholders of those minor roads have
never had any rights before the Interstate Commerce Commission and can obtain no rights in the courts of this country.
Any minority stockholder going before the courts of this
country can claim some redress on the basis of fraud for the
amount taken, but—
MR. GOEBEL: Mr. Chairman, I rise to a point of order. I
subwould like to have the gentleman confine himself to the
ject under discussion.
THE CHAIRMAN: The gentleman has suggested that you confine your discussion to the subject matter before us.
ComMn, DILLARD: It is just that work that the Interstate
could
merce Act provides for, that the minority stockholder
Commission,
have some rights before the Interstate Commerce
because the Interstate Commerce Commission fixed the rates.
Ma. GLASS: I do not expect to live very much longer, but
while I do live I certainly shall decline to undertake the responsibility of amending the Interstate Commerce Act.
There was one other point that I overlooked, and I might
mention to my friend with respect to the retirement of the
emergency currency. The Secretary of the Treasury, under
authority
the amended Vreeland-Aldrich Act, is given express
the
to increase to an unlimited extent the gold reserve behind
in
emergency notes, and that would be a very powerful factor

BANKING SECTION.
withdrawing the emergency currency from circulation when it
is no longer needed.
THE CHAIRMAN: Are there any other questions?
Ma. FLEMING (of Oklahoma): I come from a State where I
claim that our distinguished Senator had something to do with
this revenue bill, and, notwithstanding the fact, it seems as
though the Senator is almost eliminated from having any connection with this other bill. Notwithstanding that fact, I make
a motion that the address of Mr. Glass be printed and sent in
pamphlet form to all bankers and around this country
MR. GLASS: May I interrupt the proceedings again to say I
hope that if it is done it will be with this addenda, that the
distinguished Senator.from Oklahoma did his collaboration and
work with me before the bill went to the Senate.
Which motion was duly seconded.
MR. GLASS: Would I be considered impertinent if I suggest
that I hope that will not be done, because I came here without
any sort of preparation, to have a sort of face to face and
heart to heart talk with you gentlemen about the side lights on
currency legislation. You have been so gracious, but I would
be a little ashamed to have the address circulated.
THE CHAIRMAN: I want to state, for the information of the
gentleman, that these addresses will all be printed in the proceedings and sent to every banker in the country practically.
The motion was withdrawn.
A VOTE OF THANKS TO CONGRESSMAN GLASS AND
GOV. HAMLIN.
Upon motion, duly seconded and unanimously carried, a
vote of thanks was tendered to Governor Hamlin and Mr.
Glass for their addresses before the Convention.
Following announcement of meeting place of committees,
railroad accommodations, etc., the meeting adjourned.
SECOND DAY'S SESSION.
Held at Richmond, Va., in the auditorium of the Jefferson
Hotel, on Thursday, October 15, 1914, at 10 o'clock A. M.
PRESIDENT REYNOLDS: Gentlemen of the Association, please
come to order.
I take great pleasure in introducing Rt. Rev. D. J. O'Connell, Bishop of the Diocese of Virginia, who will invoke the Divine blessing.
RT. REV. D. J. O'CoNNELL: In the name of the Father and of
the Son and of the Holy Ghost. Amen.
Look down, we beseech Thee, 0 Almighty God, on this body gathered together in Thy name, and bountifully grant to them all the
graces of which they stand in need, to accomplish the noble purposes for which they are assembled. Thou bast made all things and
placed Thy creatures under the dominion of Thy laws. Open then,
we beseech Thee, the minds of this assembly to the knowledge of
those laws Thou bast established for the well-being of society and
of those conditions upon which Thou bast made prosperity depend.
Fill their hearts with noble motives and direct their deliberations to
wise conclusions. Make them all "good bankers." Save them, we
beseech Thee, Almighty God, from all the annoyances coming from
ungrounded suspicious and unfair imputations; make us appreciate
their services and respect their honor, that out of their devotion to
duty and our regard for their integrity may grow that bond of common confidence which is the condition of our prosperity and the protection of the comforts of our homes. And I also fondly pray
Thee.
Heavenly Father, to add to the glory of the regional city.
Enshrine
its name in the affection of these delegates and
associate it with the
success of one of their most successful conventions.
Through Jesus
Christ our Lord. Amen.

GREETINGS TO MYRoN T. HERRICK.
J. ELWOOD Cox: Mr. Chairman, do you not
think it would
be a great courtesy and remembrance if the A. 13.
A. Convention would by resolution send greetings and thanks to
an expresident, now in France, who is so ably caring
for all interests during these trying times, and who, by his courtesy,
untiring work and help, has endeared himself to thousands
of
refugees and stranded Americans.
I offer this resolution:
Resolved, That our Secretary be, and he is hereby, instructed to
cable to the Honorable Myron T. Herrick, ex-President of our Association, and since, United States Ambassador to France, our greetings, as well as our admiration and congratulations on the able manner
in which he has administered the affairs of his office.
MR. HYDE: I second the motion.
THE CHAIRMAN: Gentlemen, you have heard the resolution
which has been offered. While it may, in a parliamentary
sense, be a little out of order, I am sure it is of such a character that you gentlemen will probably desire to acquiesce in
it, and, unless there is some objection, I am going to present it
to you.
Which resolution was unanimously adopted.
THE CHAIRMAN: The Secretary has suggested that the outof-orders may not be misunderstood unless I call your attention to the fact that we have already adopted here an order
of business. I now take great pleasure in introducing Mr. B.
F. Harris, of Champaign, Ill., chairman of the Agricultural
Commission, who will give his report to this Convention.

137

Report of the Agricultural Commission, by B. F. Harris.
[The report of the Agricultural Commission may be found
by the reader on page 124.]
THE CHAIRMAN: Gentlemen, I have the very great pleasure
of introducing the Honorable Logan Waller Page, Director,
Office of Public Roads, United States Department of Agriculture, Washington, D. C., whose subject will be "Fundamental
Problems in Highway Improvement."
I take great pleasure in introducing the gentleman.

"Problems in Highway Improvement," by Logan Waller
Page.
[This address appears on page 105 of this publication.]
THE CHAIRMAN: Gentlemen, I desire to call your attention
to an order of business upon our programme which was inadvertently overlooked by the Chair, thinking that it might
come up later in the day under another head, but I notice that
I was mistaken. The report of Mr. Harris was not acted upon.
It will be desirable and necessary for the Convention, I think,
to take some action. It might at least be received and flied, or
whatever you have in mind. I would be glad to receive a motion in respect to it.
MR. BRADFORD RHODES (of New York): I make such a motion, and that the thanks of the Convention be tendered to
Mr. Harris and his associates for their effective work during
the past year.
Which motion was duly sqconded.
THE CHAIRMAN: It has been moved and seconded that the
report of Mr. Harris be received and filed, and that the thanks
of the Convention be tendered to Mr. Harris and his associates for their effective work during the past year.
The motion was unanimously carried.
THE CHAIRMAN: The next speaker on the programme, gentlemen, will be Edward K. Graham, President of the University of North Carolina, Chapel Hill, N. C., on the subject of
"Banking and the Larger Citizenship."
I take great pleasure in introducing the gentleman.
PROFESSOR GRAHAM: Mr. Chairman, Gentlemen of the Convention, and Ladies and Gentlemen:
I shall confine what I have to say. gentlemen, rather rigidly
to twenty minutes. Your chairman gave me unlimited time,
generously, but my own experience conforms to that good old
Yale story that you have probably heard of about the minister
who came to speak at Yale University. He asked President
Hadley how long he should speak. President Hadley told
him, why, to continue just as long as he pleased, of course.
Well, he said: "I should like to know how long I should
speak." Well, said President Hadley: "There is no rule at
Yale as to how long a man shall speak; but I will say that it
has been my experience here that no souls are saved after the
first twenty minutes."

Banking and the Larger Citizenship, by President Edward
K. Graham.
[President Graham's address is printed on page 103 of this
publication.]
MIL SANDS: Mr. President, I do not know a more fitting
time than after the very splendid address of Dr. Graham to
ask unanimous consent of the Convention to consider a resolution which I have prepared on the matter of interstate
commerce and rate cases that come before the Interstate Commerce Commission; and I would like very much to have the
consent of the Convention to present this resolution at this
morning's session.
PRESIDENT REYNOLDS: What is the pleasure of the Convention? Is it your pleasure to permit the gentleman to present
this resolution at this time? I shall be very glad to entertain a
motion to that effect. I would suggest, however, if it shall
please the gentleman that instead of presenting this resolution
just at this moment, we continue the remainder of the addresses and then present the resolution.
Ma. SANDS: There are special reasons why I would like to
get it in early in this session.
(A motion to consider the resolution was adopted.)
INTERSTATE COMMERCE COMMISSION ASKED TO ACT
PROMPTLY AND FAVORABLY ON APPLICATION
FOR INCREASE IN RAILROAD RATES.
MR. SANDS: The resolutions are as follows:
"The shock to the financial and business Interests of this country,
the stringency in money and the derangement of foreign exchanges
resulting from the war in Europe are being overcome and the
most
serious condition now confronting the financial, business and
investment interests of the country arises from the fact that
there is no
market for securities, and until this is remedied the
financial exchanges cannot be opened and business restored to normal
conditions.
"The railroad and transportation interests of the
the basis of the entire industrial and financial fabric country lie at
and unless these
interests can be made prosperous, their financial
necessities relieved
and the confidence in the stability of their
securities restored and

138

BANKERS' CON VENTION.

maintained, no permanent relief from existing conditions can be expected.
"The rates charged for service rendered by the railroad companies
have been constantly decreasing for years past, while the cost of
operation, maintenance and improvement of such properties to provide the improved service required has constantly increased, with the
result that the net earnings of these companies in proportion to capital invested and required for their development, have declined until
many railroad properties are facing bankruptcy or are in the hands
of receivers, and the obligations of railroad companies now in default have reached a sum more than equal to one-half of the National
debt of the United States.; while the confidence of the investing public, both in this country and abroad, in the value and stability of
railroad securities has been seriously impaired. Unless these conditions are promptly remedied the effect must be disastrous to all interests.
"The Government of the United States, through the Interstate Commerce Commission, has taken control and regulation of railroads with
the power to fix their rates, and this power carries with it the responsibility upon the commission to permit and require the railroads
of the country to charge rates adequate to meet their operating expenses, take care•of maintenance and improvements necessary to the
constantly improving service and provide a reasonable return upon
the invested capital and to establish their securities upon such a firm
basis of credit as to justify the confidence of the investing public.
"To this end, a prompt and liberal increase in railroad rates is essential and it is a matter of serious import to every business interest
in the United States, and especially to the banking interest charged
with the responsibility of financing the large maturing obligations of
the railroads of this country that the applications now pending be-fore the Interstate Commerce Commission for increase in rates and
any other reasonable applications which may be made to that end
should receive prompt and favorable action of the Commission.
"Now therefore be it
"Resolved, That the American Bankers Association in convention assembled at Richmond, Va., on October 15, 1914, do hereby declare
that in their opinion a prompt and liberal increase in railroad rates
throughout the United States is essential in order to enable the railroads to finance their maturing obligations and to provide the money
with which to operate, maintain and improve their properties, and
that such increase in rates must be made before we can hope to secure the confidence of the investing public both at home and abroad
in railroad securities or make an adequate market for said securities
so that the financial exchanges of this country may be opened and
normal financial conditions restored.
"Resolved further, That in the opinion of the American Bankers
Association the interests of the whole Country so affected are of more
importance than the individual interests of a few shippers who might
deem their interests prejudiced by such increase In rates.
"Resolved further, That the crisis now confronting the railroads in
this country and directly affecting our entire credit system and the
restoration of normal conditions in business and foreign exchange Is
urged upon the serious attention of the Interstate Commerce Commission and the Commission is respectfully but earnestly requested to
act promptly and favorably upon pending applications for increase of
railroad rates, and, in the exercise of Its broad powers and in the
discharge of its obligations to protect the interests of the railroads
under its control to take such action as may produce a general and
adequate increase in railroad revenues of this country to the end that
the financial credit of the railroad companies may be re-established
and that these companies may be thus placed In a position to finance
their maturing obligations.
"Resolved .further, That the Secretary of this Association is directed to foriyard a certified copy of these resolutions to the Interstate Commerce Commission."
THE CHAIRMAN : Gentlemen of the Convention, under the

rules of the Constitution, all such resolutions would be compelled to be presented fifteen days prior to the Convention, unless with your consent here. Now, the question before you is,
Shall this resolution, which has been presented, be considered?
Do you desire to consider the resolution at this time?
Mn. M. ALEXANDER (of the Lancaster Trust Company, Lancaster, Pa.): I move the adoption of this resolution at the
present time, without reference to any other committee.
THE CHAIRMAN: The resolution could not be adopted in that
way. The first order would be a motion to suspend the rules.
MIL ALEXANDER: I move you then, Mr. President, that we
dispense with the regular order of business, suspend the rules
and adopt this resolution as presented.
Tau CHAIRMAN: That could be done upon a majority vote.
Do I hear a second to that motion?
The motion was duly seconded.
TIIE CHAIRMAN: It has been moved and seconded that the
rules be suspended, and. that the resolution be adopted. Are
you ready for the question?
The question was called, and the motion carried.
THE CHAIRMAN: It is carried, and the resolution is adopted.
We will now, gentlemen, continue with the programme. I
have the pleasure of introducing Dr. C. G. Hopkins, Department of Soil, University of Illinois, Champaign, Ill., Director
of Agriculture, Southern Settlement and Development Organization, who will speak on "Soil Fertility: Greatest Necessity
and the Best Investment."
In this connection, I beg to say that, as I understand it,
the Settlement is a voluntary organization, particularly for
the benefit of the Southern farmer. I take great pleasure in
introducing Dr. Hopkins. (Applause.)
Soil Fertility, by Dr. C. G. Hopkins.
[The address of Dr. Hopkins may be found on page 107.]
THE CHAIRMAN: Gentlemen, I take great pleasure at this

time in introducing Mr. J. D. Eggleston, President of the Virginia Polytechnic Institute, Blacksburg, Va., who will talk to
us On Educating the Producer."

Educating the Producer, by President J. D. Eggleston.
[President Eggleston's address appears on page 111]
MR. HYDE: Mr. President, I believe that that is one of the
best papers that this Association, in all its history, has ever listened to. I think I voice the opinion of every man who has
give
listened to it, that we ought without being invidious, to
Mr. Eggleston a vote of thanks and appreciation.
A MEMBER: I would like to amend that by adding that the
paper be printed and distributed.
MIL HYDE: I accept the amendment.
THE CHAIRMAN: Gentlemen, you have heard the motion and
the amendment.
The motion, as amended, was unanimously carried.
THE CHAIRMAN: I think it is unnecessary to put the original
motion.
I am sure we have all been entertained and instructed by
all of the splendid addresses we have had this morning, which
have undoubtedly been prepared by these well-known educators at considerable loss of time and trouble to themselves,
and I am sure that I can express your gratitude and appreciation for their efforts here to-day; and I assure them that
we thank them very much for their kindness in coming to us.
We have five or ten minutes left before adjournment, I want
at this time to call the attention of the members to the fact
that the Executive Council considered the advisability and desirability to have a report of the Insurance Committee presented to this body, and if Mr. Sands is in the audience, I
would be very glad to have him report that at this time. No
response.
I hope you will remain for a few minutes, gentlemen.
Mle. LIVINGSTONE: I know there are many pressing things
that come up, but I ask a special privilege of five or six minutes.
THE CHAIRMAN: If you will indicate the purpose.
MR. LIVINGSTONE : I want to present just a few facts. It
so happens that I live in a home where the automobile industry is very large, and I simply ask the privilege of prefew facts.
senting a .
Tics CHAIRMAN: What is your pleasure, gentlemen?
MR. E. E. ENIERICK : I move the rules be suspended and
that Mr. Livingstone be given th4 time he desires.
Which motion was duly seconded and unanimously carried.
Mit. LIVINGSTONE: There are no resolutions attached or anything of that kind; it is just a plain condensed and simple
statement of the automobile industry of itself and by itself,
United
and the great benefits which the whole people of the
misapStates receive from it. It is simply to correct some
time
prehensions that have appeared in the daily press from
to time.
Industry," by William
"The True Status of the Automobile
Livingstone, President, Dime Savings Bank, Detroit.
be fully
Prompted by the thought that bankers generally may not
informed on the automobile industry, which has had such rapid growth
during the past ten years, I have had prepared sonic facts and figures
for the benefit of the present gathering that I believe will show the
automobile industry in its true light and indicate the marvelous develpoment there has been in the making and marketing of the automobile, which has grown from a comparative toy to• a business of
tremendous volume in the short period of twelve years. At first a
machine for pleasure use only, It is rapidly taking its place among
the necessities of our fast-moving civilization.
Probably 75 per cent of all automobiles made in this country are
produced in Detroit and Michigan, and my location in that city, coupled
with my acquaintance with officials of the leading automobile factories,
enables me to know conditions to an exceptional degree.
Although looked upon as a rather 'hazardous business in the early
days, automobile manufacture has assumed gigantic proportions, with
apparently little decrease in the demand, although with prices getting
lower each year and the margin of profit smaller. It is worthy of
note that at no time in those twelve years has the industry, as a
whole, taken a backward step, the records showing that each year an
increasing number of cars has been made and sold; from less than
a thousand cars in 1902, when the business may really be said to have
begun, to 435.000 cars during the fiscal year of June 30, 1914, the
latter having it total valuation of about $425,000,000. Coupled with
these figures are the products of the parts and accessory makers, with
sales during the past twelve months running into big figures. Attention at this point is called to the fact that 47 per cent of the cost
of an automobile is in the labor.
While in the early days the automobile was a luxury, it is now a
necessity for a large proportion of owners, and has taken its place
among other utilities like the telephone and telegraph, with a broadening field because of the increasing demand for commercial or freightcarrying power-driven vehicles. This accounts largely for the continued buying of cars even in times of depression, as in 1907 and
190S—a period that showed substantial Increases in car sales. However, it must be appreciated that to the farmers, doctors and business
men generally, the automobile is now a dependent part of their equipment for doing business.
As the greatest number of ears are sold during seven months of the
year, makers and dealers have been borrowers; and It Is a matter of
record and congratulation that, in fostering this growing industry,

BANKING SECTION.
bankers of this country have played a most important part with
practically no loss. Discerning bankers, in the past few years especially, have appreciated the stability of the indestry and the standing
of the men in charge, and have co-operated to a marked degree in
establishing the business on its present high plane.
There have been few wild-cat schemes, and those few have died
a-horning. The makers, as a class, are energetic and enterprising, taking pride in their product and in their ability to. give employment at
substantial wages to the best men of many trades, including engineering skill of the highest quality. That the automobile manufacturer
is broad in his views and co-operative in his work is evidenced by
the excellent support they have all given the "Buy-a-Bale-of-Cotton"
movement in the South. Practically all of them have bought cotton
on their own account, and have instructed their branches and dealers
to do likewise. One company, with many thousands of (Milers, bought
a bale of cotton for each dealer in the Southern territory, and also
agrees to buy an additional bale for each car sold there, which should
mean probably four or five thousand bales. Another company bought,
outright, 500 bales of cotton at ten cents per pound.
The perfection of the motor car in twelve years has amazed even
the most optimistic, and accounts largely for the increasing sales.
The simple present-day car can be operated by man, woman or child;
and even those of very moderate prices do not entail the high
maintenance cost that was ever present in the earlier models. All
this helps to account for the tremendous purchases by people of all
stations that have been so astounding to those unfamiliar with automobile conditions.
While depressed to some degree at present, the figures I have in
hand show that the automobile business has suffered less since July
than almost any other line•of trade—one company alone selling more
than 20,000 cars during August.
Being a season business to some degree, it has been the custom
among manufacturers to borrow during the fall and winter months
for materials and labor, discharging their obligations in the spring
and summer.
The manufacturer ships to the dealer, of whom there are more than
15,000 in the country, sight-draft against bill-of-htding. The dealer,
whose capital is too limited to carry a large stotk of cars, has been
accustomed to borrow from his banker, thus permitting him to handle a larger stock and do a bigger volume of business, with the banker
having always ample security for his loans.
The dealer's business with the final buyer has invariably been on a
cash basis, it being a noteworthy fact that comparatively few automobiles have been sold on deferred payments of any kind. Tile fact
that the automobile can be so readily depreciated with a few weeks'
use, has eliminated the possibility of makers consigning cars to dealers, and has materially aided in keeping the business one for cash
only and consequently in a healthy state.
The disposition in early years to look askance at the automobile
manufacturer and dealer has passed, and with further knowledge of
the business, credits commensurate with sound banking methods have
been extended to the mutual benefit of all. No longer do we hear talk
that the automobile business will go the same way as the bicycle
business, it being generally agreed that the making and marketing of
motor ears is among our greatest industries—a situation to be credited to a large degree to the care and conservatism of bankers who
have been active in caring for the automobile dealer among his patrons.
Before giving some figures in connection with the industry, let us
look a bit into the future.
How many cars will be sold next year?
What about profits from the sale, storage and repairs by dealers?
Will more dealers come into the field?
Where are future markets for the maker?
What about commercial vehicles?
While the business depression may interfere and bring about a reduction during the next twelve mouths, it is not unlikely that 450,000
cars can be sold. Thousands of people living in the suburbs, including farmers, doctors and salesmen, actually need cars in their general
every-day life. Big cities continue to show the registration of new
automobiles, particularly of the moderate-priced cars, with the market
almost normal for the higher-priced models.
With 15,000 dealers in the country, and 1,400,000
cars to be cared
for, the profits from the sale, storage and repairs runs
into substantial
figures. There will be no great increase in the number
of dealers,
because those in the field now seem well able to care
for the annual
production.
The future market for automobiles rests not alone in this
country,
but throughout the world, especially as European makers are
not
likely to produce very much for some time. Last year American
automobile manufacturers exported cars to the value of
$26,574,000,
with parts amounting to $8,000,000, or a total of $34,500,000. When
it is taken into consideration that France alone exported motor cars
to the value of $44,000,000 last year, with Germany and Italy totaling almost the same, it can be seen what a world-wide trade is awaiting the automobile maker of this country.
Commercial vehicles are fast coining into the field, and, with the
destruction of horses and trucks in the war on the other side, this
end of the business must have a healthy growth during the next few
years. There are now about 100,000 freight-carrying motor vehicles
in use, the production during the past twelve months being about
30,000, with the ratio of increase greater than was ever known in
the passenger-car field.
It is doubtful whether there will be any great increase in the number of automobile manufacturers. It is not unlikely that some of the
smaller makers will fail, with the others growing bigger. There has
been little over-capitalization; and, in fact, a very large number of
the concerns could profitably use more capital in their business.
Itecause of my residence in Detroit, which is practically the home
of- the automobile industry, and my acquaintance with officials of the
National Automobile Chamber of Commerce, I am able to give to the
members here some facts that must be of interest to students of trade.
There are more than 450 listed manufacturers of motor vehicles,
some making both pleasure and commercial ears.
Of these, 170 make gasoline passenger cars,
245 gasoline commercial cars,
77 cycle cars,
27 motor fire apparatus,

1.;9

18 electric pleasure cars,
24 electric commercial vehicles.
There is an increase in the number of manufacturers over the last
two years, but a decrease as compared with the number at the end
of 1911, except as regards cycle cars, which are a new development.
The total production for the year ending June 30, 1914, was, approximately, 435,000 cars and trucks, valued at $425,000,000. The
average valuation of cars has consistently decreased until It is now
about $980, more than half the cars selling at less than $600.
Of dealers and garages, we find listed 15,500 automobile dealers,
13,630 garages, 1,280 repair shops and 680 supply houses.
In exports, we find an increase from $5,502,000, in 1907, to $34,500,000 in the twelve months ending June 30th; while the imports
during that period have decreased from $4,842,000 to $1,432,000.
Figures as to the number of employees in the automobile industry
are not available because of the various allied trades involved; but
in my State of Michigan, the Department of Labor reported that for
1912 the various establishments making automobiles and parts employed 89,413 men, and this number has increased.
It will be seen, therefore, that the automobile is now an established article of commerce, with an excellent future. Our American
cars are splendidly built; they have a wide market here and throughout the world, and have a real place in civilization for the movement
of individuals and produce.
PRESIDENT REYNOLDS: The Secretary has an announcement
to make.
SECRETARY FARNSWORTH: In the annual report of the Secretary submitted at this meeting occurs the following statement
with reference to Richmond :
"The Convention of our Association now being held in Richmond is the fortieth in the history of our organization and the
second Convention to be held in the city of Richmond—our twenty-sixth Convention having met here in 1900. The Convention of
1900 was a pronounced success, with Southern hospitality unbounded. The annals of the social features of the convention
called to mind the entertainment given by Mr. John P. Branch,
who to-day is still active despite his advanced years and now
the dean of the profession in Richmond, if not in the State of
Virginia, and who will with all bankers of Richmond extend
the warm hand of welcome."
PRESIDENT REYNOLDS: I have noticed in the audience this
morning Mr. Branch, and I thought it would be entirely fitting
to at least call him to his feet so you might know who he is
and if he cares to have anything to say we will be delighted to
listen to him. Gentlemen, Colonel Branch.
COLONEL BRANCH: Gentlemen and fellow-bankers, of course
this is a very unexpected call on me. A man of my years that
has anything to say can say it in much less than twenty minutes, and, old as I am, I shall not attempt to make any speech.
But I want to say one thing, that I am most happy to meet
you gentlemen here to-day. I doubt if you can imagine the
pleasure that is given me to meet you and to shake many of
you by the hand. I have been at work for nearly sixty years,
and I am still at work, believing it is better to wear out than to
rust out. You cannot imagine the pleasure you have afforded
every man in Richmond by your coming here on this occasion,
and I shall hope and pray that you will come again. Do you
know, gentlemen, that a banker is about the most honored thing
upon this earth except a pretty woman!
I thank you, gentlemen, and pray for you, and hope I shall
have the pleasure of meeting you again.
On motion of Mr. Livingstone of Detroit, at 1.15 p.m. a
recess was taken until 2.30 p.m.
AFTERNOON SESSION, 2 P.M.
THE SECRETARY: I will ask Mr. Freeman of New York, Mr.
Smith of Indiana, and Mr. Lawson of Michigan to adjourn and
get Mr. Beck and escort him to the platform, the principal
speaker.
THE CHAIRMAN: Gentleman, we are considerably past the
time set for holding the afternoon session, and I think we had
better come to order, with a view of disposing of a few small
items of business here.
The first order of business is the report of the Currency
Commission, by Mr. Hepburn.
THE SECRETARY: There is no report, Mr. Chairman.
Turn CHAIRMAN: The next is the report of the Committee
on Law.
MR. PATON : The Law Committee I represent. The chairman
was not able to be present. We will not read
the report, but
just hand it in. It embodies a suggestion for an act to
limit
the liability of a bank to its depositor for non-payment
of a
check through error.
LIMITING LIABILITY ON CHECKS.
No bank shall be liable to a depositor because of the non-payment,
through mistake or error and without malice, of a cheek which should
have been paid unless the depositor shall allege and prove actual
damage by reason of such non-payment, and in such
event the liability shall not exceed the amount of damage so proved.
MR. GELmoRE: I
MR. ALEXANDER:
The motion was
MR. PATox : Also

move it be approved.
I second the motion.
unanimously carried.
another resolution which has been
drafted:

BANKERS' CONVENTION.

140

PAYMENTS TO MINORS.
shall
"Whenever any minor or other person under disability
her
make or have credit for a deposit in any bank in his or
name, such bank may pay such money on check or order of
such depositor the same as in cases of depositors not under
disability, and such payment shall be in all respects valid in
law."
MR. HEBRON : I move it be adopted.
Which motion was duly seconded and unanimously carried.

Report of the Committee on Law.
[The report of this Committee appears on page 126.1
Mn. PAToN: I have the report of this Committee covering all
matters of Federal legislation which have been pending in Congress during this year. It is a very long report and unless you
care to hear it I will simply ask that it be filed and printed.
Ma. SMITH: I move that the report be filed and printed in
the regular way.
Which motion was duly seconded and carried.

Report of Committee on Federal Legislation.
[This report will be found on page 125 of this issue.]

Committees and Committee Membership.
SECRETARY FARNSWORTH: Under the new constitution, the reports of the various convention committees are made to the
convention and can be accepted and filed, but all action relating
to the appointment of committees and committee membership
comes under a special order of business, which is set for this
afternoon. Under this order we have the Currency Commission,
which will be continued as it stands at the present time unless
action is taken in regard thereto, and the Agricultural Commission, which was appointed at the convention in Boston as
a special committee to serve one year.
Mn. SIMPSON, of South Carolina: Mr. President, it seems to
me the work the Agricultural Commission has been doing has
been of a highly constructive character and of great benefit to
our country, and I therefore move that the Agricultural Commission be continued through the ensuing year.
PRESIDENT REYNOLDS: What is your pleasure in regard to
the Currency Commission? If there is no special action, the
Commission will be continued as heretofore. It is so ordered.
THE CHAIRMAN: Gentlemen, you have heard the reading of
this report, which is, in fact, a report of the Committee of the
Executive Council. Is there any action that you desire to take
upon the matter at this time?
MR. EMERICK : I move you that the report be received and
filed, and that the recommendations therein contained be approved by this Convention.
THE CHAinmAN : If I understand the report, some of those
recommendations could not be approved, because there could
not be a permanent committee of the American Bankers' Association appointed without a change in the Constitution. It
could be referred back to the Executive Council with the recommendation that the Committee be continued during the
ensuing year.
MR. HENSCHEN: I move that this report of the Committee
be referred back to the Executive Council.
THE CHAIRMAN: Do you offer that as an amendment?
MR. HENSCHEN : Yes.
MR. EMERICK : I accept the amendment.
THE CHAIRMAN: It has been moved and seconded that this
be referred back to the Executive Council, with the recommendation that the committee be appointed.
COMMITTEE ON FIDELITY INSURANCE CONTINUED.
that
MR. HAMILTON: I move, as a substitute motion for that,
with inthis report be referred back to the Executive Council,
structions that the•Council continue the Committee.
THE SECRETARY: The present Committee cannot be continthe
ued in the Council, because the Constitution governing
Council provides that all of the committees shall serve for one,
one-year
two and three years. The gentlemen who are on the
members of
class and who go off the Council, of course, are not
to be organized
the Council, and a new Committee will have
by the Council.
closely,
I did not follow the latter end of that report very
appointbut, as I understand it, the report provides for the
There cannot
ment of a permanent Association Committee.
for at this time
be a permanent Association Committee provided
This Insurance
withour an amendment to the Constitution.
to-day in acCommittee can be appointed by this Convention
be an Insurance
cordance with that suggestion, and it will
if they want to
Committee for one year. In the meantime,
can be
permanent Committee of the Association, that
make a
amendment, and can only be done in that way.
done by an
recomMR. SANDS: That is all the Insurance Committee
year from
mends, that there be a Committee appointed for one
under Secthe Association, and it is entirely eligible, I think,
tion 3.
THE CHAIRMAN: It has been moved and seconded that this
Committee be continued as a Convention Committee for one
year.

Which motion was unanimously carried.
MR. SIMPSON : Mr. President, this morning in my motion in
reference to the Agricultural Commission, I fear I did not
make myself clearly understood. I wish now to make another
motion to make clear my purpose. I move that the members
of the Agricultural Commision be appointed by the administrative committee. This morning I merely moved that the
concommission be continued, but it was not my purpose to
tinue the present membership of the commission. I offer that
as a motion at this time.
toPRESIDENT REYNOLDS: Gentlemen, we are very fortunate
day to have with us a gentleman whom I am sure you will be
glad to bear. I take very great pleasure in introducing the
Hon. James M. Beck, formerly Assistant Attorney-General of
the United States, who will now address you upon the subject
of "The Case of the Lost Million."

The Case of the Lost Million, by James M. Beck.
[Mr. Beck's address in full will be found on pages 95 to 102.]
THE CHAIRMAN: I do not wish to cut off the applause for
that splendid address you have heard, which has been most
interesting and entertaining; but I wish to announce particularly that the program we now have will not occupy probably
more than fifteen or twenty minutes, and we sincerely hope
you gentlemen will remain with us. I take great pleasure at
this time in expressing our approval and thanks to Mr. Beck
for the splendid address he has delivered, and I am sure that
all of you have listened to it with a great deal of interest.
Gentlemen, the next order of business as set down in the
program is that of invitations for the next Convention.
SECRETARY FARNSWORTH: By amendment to the Constitution, that matter is referred to the Executive Council.
THE CHAIRMAN: The next order of business is that of unfinished business.
SECRETARY FARNSWORTH: No unfinished business.
THE CHAIRMAN: Communications from the Executive Council.
SECRETARY FARNSWORTH: No further communications from
the Executive Council.
THE CHAIRMAN: Resolutions?
SECRETARY FARNSWORTH: I have one resolution, the resolution adopted by the Trust Company and Savings Bank Sections
for submission to the American Bankers Association.
COMMITTEE TO BE APPOINTED TO SECURE MODIFICATION OF FEDERAL RESERVE LAW SO AS TO ATTRACT
STATE INSTITUTIONS.
Resolution adopted by Trust Company and Savings lank Sections
for Submission to the American Bankers Association.
At a Joint Meeting of the Trust Company and Savings Bank Sections, held on Tuesday, October 13, 1914, at the Jefferson Hotel, Richmond, Va., the following resolution was unanimously adopted :
Whereas, We all appreciate the desirability of having the State
financial institutions Join the Federal Reserve system, but recognizbe
ing before doing so, amendments to the Federal Reserve Act will
necessary, now, therefore, be it
a
Resolved, That we recommend to the General Association that
committee of twelve be appointed by the President of the American
Bankers Association; three thereof, by the Savings Bank Section;
three thereof, representing the Commercial State banks, and three
thereof, representing the National Banks, whose duties shall be to
confer with the authorities at Washington, in order to secure the adoption of such amendments to the Federal Reserve Act as shall make it
more desirable for State Banking institutions to join the Federal Reserve system.
It was duly moved and seconded that the foregoing resolution be adopted as read by the Secretary.
Which motion was unanimously carried.
THE SECRETARY: There are two telegrams here which I will
read to the Convention, and on which the Convention may desire to take some action. If they do, it will be under the head
of resolutions. (Reading.):
MONTOOMIORY, ALA., October 14, 1914.
Chairman, American Bankers Association, Richmond, Va.:
Clearing House Banks of this city urge action to obtain circulation
for State banks members reserve system or becoming members as originally proposed by department. Copy of this wired Sol. Wexler.
JOHN P. KOHN.
Mn. WEXLER I received a copy of that message, but I did
not take any action on it, because I don't see at this time that
the Department could be influenced to take any such action.
I doubt the wisdom of it under the present circumstances. It
is for the Convention to take such action as they see fit.
THE CHAIRMAN: Unless there is some further action on it,
we will pass it.
THE SECRETARY (reading):
RESOLUTION IN FAVOR AMERICAN MERCHANT MARINE.
BoszoN, Mass., October 13, 1914.
Col. Fred E. Farnsworth, the American Bankers Association, Richmond, Va.:
,
National Foreign Trade Convention, National As ociation Cotton
Manufacturers, Boston Chamber of Commerce, New York State Waterways Association and numerous important bodies throughout country have passed resolutions emphasizing imperative necessity of national legislation permitting existence of American merchant marine.

BANKING SECTION.
American bankers have already conferred inestimable benefit upon
country's manufacture and commerce by causing passage of Act enabling financing of foreign commerce by American banks in foreign
countries. Now we ask your help in transporting country's commerce
in American ships. We beg you to pass resolution similar to that
introduced last convention, now in hands of your Federal Legislation
Committee.
THE NATIONAL MARINE LEAGUE,
By P. H. W. Ross, President.
Tun CHAIRMAN: Gentlemen, do you desire to take any action
upon the telegram?
Mn, HALVER: I move that this Convention adopt the resolution as it was read as the resolution of this Convention.
THE CHAIRMAN: Similar to that of a year ago?
Ma. Mix=: Yes.
Which motion was duly seconded. -THE CHAIRMAN: It has been moved and seconded that this
Convention adopt a resolution similar to that of a year ago,
lending its support to that suggestion.
Which motion was unanimously carried.
THANKS TO RICHMOND, ETC.
MR. LYNCH: Mr. Chairman, I move that a vote of thanks
be given by this Association to the bankers of Richmond, the
people of the city of Richmond, the press of Richmond, and
the press of the United States, to the various speakers who
have favored us with such eloquent addresses, to the business
organizations and trade organizations of Richmond, the clubs
and all others who have contributed to the warm welcome we
have received And I also move that in the resolution be included a vote of thanks to the Jefferson Hotel, to the generous
and free use of meeting and registration rooms.
Which motion was duly seconded and unanimously carried.
THE CHAIRMAN: The Secretary desires to read one or tivo
items of his report.
Whereupon the Secretary read the portion of his report
headed In Memoriam.
NOMINATIONS AND ELECTIONS.
THE CHAIRMAN: Gentlemen, I have the pleasure at this time
of introducing Mr. George W. Rogers, of Little Rock, Chairman
of the Committee on Nominations for officers, who will now
make his report.
Mn. ROGERS (reading):
To the Delegates of the American Bankers Association, Richmond, Va.:
At a meeting of your Nominating Committee, held to-day in the
salon of the Jefferson Hotel, at five o'clock P.M., at which thirty-six
members of the committee were present, the following persons were
unanimously nominated for the positions named in your Association
for the ensuing year: William A. Law for President, now Vice-President of the First National Bank of Philadelphia.
For Vice-President, James K. Lynch, Vice-President of the First
National Bank of San Francisco.
I move you, Mr. President, that the gentlemen named by the
Nominating Committee be elected for the offices named, Mr.
Law for President and Mr. Lynch for Vice-President.
MR. Cox: I second the nominations.
The nomination of President Law was also seconded by a
member from South Carolina and many others.
THE CHAIRMAN: Gentlemen, you have heard the motion made
by Mr. Rogers, and duly seconded, on the report of the Nominating Committee. Are you ready for the question?
The motion was unanimously carried, amid applause.
THE CHAIRMAN: Gentlemen, you have been unanimously
elected.
Mr. Law, I take very great pleasure in pinning this badge,
insignia of the office which you will hold, upon your coat, and
I am sure that it is not necessary for me at this time to add
any words to the fact that you have been selected by this great
body as its Chairman. I congratulate you upon your election,
as well as the members of this Association. I take very great
pleasure in introducing to you President Law.
PRESIDENT Law: Gentlemen of the American Bankers' Association: I remember several years ago hearing Governor Herrick, now Ambassador Herrick, make this comment upon his
election to the Vice-Presidency of the American Bankers' Association: Gentlemen, he said, the principal duties of the VicePresident are to so conduct himself, and so lay his lines, as to
be elected President at the end of his term of office.
I have endeavored during the past year so to conduct myself
as to meet with your approval, and I feel to-day that this election, this promotion on your part, is in a certain sense a certificate of good conduct.
This is an important position. For a year there is abundant
work for a man of energy and initiative and versatility far
beyond my powers, but I hope to justify the confidence that you
have shown if I have the general co-operation of my friends
among your members and of the Association, which is most
effective in the accomplishment of our various purposes.
There is one matter I wish to mention in bringing my remarks to a close. Most of the speakers here to-day have referred to the historic city of Richmond, in introducing their
remarks, and I wish to say to you that it gives me special
pleasure to have this great honor conferred upon me largely
through the efforts of my Southern friends in this great, old
city of Richmond, one of the leading cities in the South, and at

141

one time for four years, or a part of four years, the Capital.
I don't know that to all of you gentlemen there has ever come
an understanding of the sentiment that Southern people for
the last thirty or forty years have felt toward Richmond. Aside
from its Revolutionary and Colonial importance, they have felt
toward it that it was a shrine around which clustered many
sacred and hallowed memories, but those days have passed and,
without any apology for what happened or any change of sentiment, we are all glad to-day to see this city become a great
industrial and financial center, and to see it take on a new life
and increase its wealth and influence. It can never enlarge the
charm that it has always had. The Richmond people understand hospitality, and their hospitality and courtesy has a
flavor that is distinctive and different from anything else any
of us have ever eiperienced.
And if I may be permitted to do so, I wish to add one item
to the resolution of thanks which your Vice-President offered.
On behalf of the ladies who visited Richmond on this occasion, I want to thank the ladies of Richmond for their exceedingly generous and beautiful hospitality.
Gentlemen, it becomes my very pleasing duty to put the
badge of Vice-President upon the manly form of a gentleman
whom you all know, and those who know him most love him
best, Mr. Lynch, of California. I am glad to say that I have
heard that your father was a Virginian, and I shake your hand
again. Mr. Lynch's father was a soldier in the Mexican War
and one of the pioneers of California, and if you have ever
been to San Francisco you know that is a title of nobility.
Mr. Lynch, I take great pleasure in pinning the badge of
Vice-President upon you.
Ma. LYNCH: Gentlemen of the Convention, I believe in the
American Bankers' Association, I believe in its achievements, I
believe it has been a great power to improve banking conditions
in this country; I believe that no matter how much It has done,
it still has more to do; and I believe that in the year to come,
under the leadership of your President, it will accomplish much
for the good of bankers, and it will be my duty and my pleasure to second his efforts to the very best of my ability.
And for the privilege which you have conferred upon me,
this privilege of service, I thank you from the bottom of my
heart. And I thank you also on behalf of the distant portion
of this country, the part of it west of the Rocky Mountains,
which, up to this time, has never had such an honor conferred
upon one of its citizens; and I assure you that the citizens of
that country and the bankers are in all respects with you in
every effort to sustain the credit of the United States. I
thank you.
THE CHAIRMAN: Gentleman, Mr. William Livingstone, who
was a former beloved President of this Association, wishes to
make a few remarks, and I will ask him to take the floor.
SILVER SERVICE FOR ARTHUR REYNOLDS.
Ma. LIVINGSTONE: Mr. President and Gentlemen of the Association, it has been allotted to me, as a very pleasant privilege, to say a word or two to the retiring president.
It so happens that, for the first time in forty years of our
Association, we have lost a president by death.
I record the lamented, the lovable Charles Huttig of St.
Louis. Mr. Reynolds, then vice-president, assumed his place
and took up the duties which devolved upon him by the death
of Mr. Huttig, and has therefore served a longer time as
president of this great American Bankers Association, with
all its responsibilities and duties, than any other president
who has held that title since the formation of this Association.
During all that time he has gone in and out among us, day
by day, week by week, month by month, growing in the esteem
and respect of the members of this Association. Consistent,
fearless, having the courage of his convictions at all times, he
has never hesitated to express, regardless of what the comment
might be, what he believed to be the best thing, the true
thing, and what would best further the interests of our Association. I may add, in connection with this, that there is a
well-defined rumor that Mr. Reynolds is now being considered
as the Governor of the new Regional Bank at Chicago.
My information comes from Mr. Henry B. Joy, a member of
the Regional Board, a fellow townsman of my own, and with
it, I say to you most emphatically, goes the endorsement of
every bank in the city of Detroit, as well, so far as my knowledge goes, as with almost the entire—I think I can say almost
every bank in the State of Michigan that belongs in that regional district.
Now, it becomes my pleasant privilege, on behalf of the
members of this Association, to present to Mr. Reynolds this
beautiful silver service.
Amid the cares and anxieties of life which come to each and
all of us, it is the bright spots in life that make life endurable.
Some poet has said somewhere, I have forgotten the author,
that there are moments in life that we never forget, that
brighten and brighten as time steals away, that add to the
charms of the happiest lot and lighten the gloom of the loneliest day; and I say to you, Mr. Retiring President, let me
hope
that this will be one of the milestones in your life that you
will always look back to, and in pleasure that it will
be a

142

BANKERS' CONVENTION.

green garland to hang on memory's walls that will grow
brighter and brighter as time steals away.
With the greatest possible pleasure, and on behalf of the
members of the Association that presents you with this silver
service plate, and with it goes the hope and the wish for you
and your good wife, Mrs. Reynolds, who is absent, that you may
live to see the century mark, and that the balance of your life
may have just clouds enough to have a glorious sunset.
MR. REYNOLDS: Mr. President, Mr. Livingstone and Gentlemen of the Convention.
In regard to the reference which ex-President Livingstone
has so kindly made regarding future possibilities of my career,
I can only say that I have no knowledge of any action that
may have been taken, either in Chicago or.elsewhere, although
I have noticed the statements that have been made in the
papers.
I am deeply touched by this expression of your good will. I
feel that in the past I have ben greatly honored by the American Bankers' Association. And in accepting this token from
your hands, I must express not only my gratitude for this additional mark of your esteem, but as well to all of you for the
sturdy, unfaltering co-operation you have in the past years
extended not only to my efforts in behalf of this Association,
but to those of all of the administrative officers. Your assistance has indeed been a great aid in the work.
I shall regard this testimonial not only as an honor from
this Association, but as representing the personal friendship of
its members, and I will treasure it as a constant reminder of
this occasion and the experiences that have resulted from my
connection with all of you.
In laying down the gavel as President of the American
Bankers' Association, an honor which I have prized very
highly, I shall surrender not one particle of my interest in its
future upbuilding and success.
We are proud of the progress our Association has made.
Its sphere of influence has been broadened year by year, until
to-day it is a vital force in the economic affairs of the nation.
The work must continue. You have to-day chosen those who
shall carry it forward, and I bespeak for them that same cordial support and unwavering loyalty that you have extended to
me in the past.
I sincerely regret that my family cannot be here to-day and
join in the pleasure of this occasion, but on account of the
illness of a son—one of the brightest rays of happiness that
has ever entered my life—it has been impossible.
Gentlemen, on behalf of myself and my family, I accept this
gift as a memento of your friendship, which I trust I will
always deserve. I fully appreciate your many kindnesses and
the honors you have conferred upon me. Words are but empty
expressions of the promptings of my heart at this time, and I
can only say that I thank you.
THE CHAIRMAN: Gentlemen, during the year just ahead of

us it is very probable that all the Federal Reserve Banks will
be organized and this new system put into operation. The success of this system will depend upon the men who are to administer it; and if we have such men as our retiring President, and such men as Paul Warburg and George Reynolds and
others in the management of that system, we can be assured
of its success. We have with us to-day a gentleman who, as
well as Beaumarchais, is a dramatist and an author. As a
side line he is the contracting detective agency of the American Bankers' Association. If Mr. Burns is here we would like
'
to hear from him for a few moments.
MR. WILLIAM J. BURS: Mr. President and Members of the
American Bankers' Association. I am deeply grateful for this
opportunity of expressing my thanks and appreciation for the
confidence reposed in me by the American Bankers' Association;
and I know that I express the sentiment of very person present when I state that we have had a most delightful visit to
this beautiful city and the hospitable people; and I also desire
to thank the members of the Association for the co-operation
and aid they have given me in my efforts to carry out the
work assigned to me. And I promise that in the future, as in
the past, I shall bend every effort to succeed in my work, and
I sincerely hope that I shall earn a continuance of your aid
and appreciation.
I thank you.
THE SECRETARY : I have been asked to read this announcement, from the Committee on Bank Credit Men, so that the
Convention may know something about the work of this Committee and their future plans.
IMPROVING CREDIT RATINGS.
At the last Convention Mr. Kennard, of Maine, brought before the Council the necessity of some organization of workers which should have for its object the improvement of credit
methods and the adoption of uniform systems of securing information and compiling same for the use of the commercial
paper buying banks, etc. At this Convention an association
has been formed. From the favor it has met with, it seems
destined to be a most important branch of the Association's
work. No appropriation is asked at this time, as the banks
will support it direct; but this statement is made for the purpose of informing the Convention that this much needed cooperation upon the part of banks is receiving serious attention,
and that the organization which has been effected is not intended to be independent of the Association in any manner, and
that at the next Convention of the American Bankers' Association it is expected that sufficient interest will be shown by the
members of the American Bankers' Association to give it full
recognition.
TIIE CHAIRMAN: Is there any further business?
On motion, duly seconded, the Convention adjourned

TRUST COMPANY S CTION
AMERICAN BANKERS ASSOCIATION
Nineteenth Annual Meeting, Held at Richmond, Va., October 13, 1914

INDEX TO TRUST COMPANY PROCEEDINGS
Reserve Act and State Institutions, H. P. Willis
Report of Executive Committee
Report of Secretary Report of Committee on Legislation

Page 143
Page 148
Page 148
Page 149

Report of Committee on Protective Laws
Detailed Proceedings
_
_
Joint Meeting Two Sections
Address of President Goff

- Page 150
- Page 151
Page 151
Page 158

The Future of State Institutions Under the Federal
Reserve Act.
By H. PARKER WILLIS, Formerly Associate Editor of New York Journal of Commerce.
Mr. Chairman and Gentlemen: The subject assigned
me for this meeting is "The Future of State Institutions „
under the Federal Reserve Act." The subject is a broad
one because the theory of the Federal Reserve Act is that
there should be a union of all banking institutions. Instead of confining the operation of the law to national
banks, as was at first proposed by some thinkers, its
scope was finally enlarged so that to-day almost any institution may become affiliated with the Federal Reserve
system by complying with the provisions applicable to
it. The legislation as it has developed, aims to create a
means of unifying the reserves of the whole nation, in
order that the whole banking system may be strengthened where it is weak by reliance upon the aid of the
stronger portions of the country when need may be, while
those parts of the nation which may have excess funds
are enabled to employ them profitably by placing them
at the disposal of other portions of the country for investment in the paper which may offer itself.
In another great and important way, the Federal Reserve Act as now framed contemplates the inclusion
Within its range of as many of the banking institutions
of the country as can be induced to participate. I refer
to the question of domestic exchange. The act provides
for unifying domestic exchange methods. Such unification calls for the aid of all the banks of the country, if
it is to be thoroughly successful and practical. Both as
regards the attainment of genuine banking strength,
therefore, and as regards uniformity of domestic exchange rates, the Federal Reserve Act distinctly contemplates and desires the inclusion of all institutions within
its scope in the way that I have just indicated. I might
go further and suggest a variety of considerations bearing upon this subject and showing the reasons why and
the ways in which such affiliation is contemplated by
the law. In the short time at my disposal, however, it
will not be possible to cover the whole ground, and I
shall have to confine myself to a few of the more important aspects of the subject.
Assuming, what is evident from the Act and from all
that has been said, that State institutions are freely welcomed to the Federal Reserve system, and assuming fur-

ther that, as I have just intimated, the system cannot
attain its full fruition and success unless the great majority of the banks of the country are gathered into it,
let us consider the practical question presented to the
State banks of the country.
First of all, what is there to prevent State banks from
entering the Federal Reserve system? The Act provides that every such bank shall comply with the requirements that are imposed upon national banks with regard
to capitalization in relation to population, and in regard
to the amount of reserves maintained. Such State banks
must, moreover, conduct themselves in a general way on
the basis of banking management that is laid down for
national institutions under the Federal Reserve Law, although it may be said in passing that there is nothing
in that law to interfere with those banks which are organized under State law, or to prevent them from taking advantage of those broader provisions of legislation
which are found on the 'statute books of some States.
But, in a general way, State banks which enter the Federal Reserve system must live up to certain requirements
as to capital and reserve, and must submit to examination on the same basis as the national members of the
system. How does this affect the State banks?
It is undoubtedly true that in some States the standards set by law on the three points I have just mentioned
are lower than those of Federal Reserve system. We
cannot, however, get a fair test of the case by merely
noting that there is a difference between State and
National legislation in this regard. The real question is not
whether there is a difference—that is to say, whether a
State bank can if it chooses, get down to a lower basis
of management than that prescribed by the National
law—but whether the basis prescribed by National law
is unduly high or severe. I do not think that a consideration of the terms of the law will lead any one to think
so. As is well known, the Federal Reserve Act, during
the later stages of its development in Congress, was modified in the sections relating to reserves so that
as the
thing stands, a bank in a central reserve city is
merely
obliged to keep eighteen per cent, of its demand
deposits
and five per cent, of its time deposits, one-third
.
of the

144

BANKERS' CONVENTION.

said eighteen per cent. to be in its vaults in cash, seveneighteenths in the Federal Reserve Bank, and the balance either in its own vaults or in the Federal Reserve
Bank. A bank in a reserve city has to hold fifteen per
cent. of the aggregate amount of its demand deposits and
five per cent. of its time deposits. it being necessary that
one-third of the fifteen per cent. referred to shall be held
In cash in its own vaults, while six-fifteenths, or twofifths, are placed in the Federal Reserve Bank of its district, the remainder being optional. In country banks it
is necessary that a twelve per cent, reserve shall be maintained against demand deposits, with five per cent.
against time deposits, while of this twelve per cent., only
one-third, or four-twelfths, is ultimately to be carried
in cash, and in the Federal Reserve Bank five-twelfths,
the balance being optional as between the bank's own
vaults and the Federal Reserve Bank.
Now, those requirements are not severe. They are
very much lower than the ones that exist at the present
time, particularly when it is remembered that the Act
itself provides that one-half of each installment of reserve may be protected by re-discounting of the paper of
the specified kinds enumerated in the law and, as a matter of fact, although this is permissive, there is nothing
whatever in the law to prevent a bank being accommodated to the full extent of its installments in the way of
re-discounts; in fact, one man supposed that after the
system has been fully established, and the banks are
open, that in many cases an institution which wants to
build up its reserve will do so not by getting gold and
taking it there, but by simply obtaining a re-discount
upon the books of the Federal Reserve Bank of the district, leaving it to that bank to provide the gold or lawful money which is necessary in order to protect that
credit
Comparison of these figures with reserve requirements
in the several States would be interesting, but time will
not permit me to present a complete tabular view of the
situation. Suffice it to say, therefore, that the reserves
mentioned in the Act are not as great as those which are
required of banks in the States whose laws have been
best framed and are best executed. We must, therefore,
reach the conclusion that the reserve requirements of
the new system are not such as should prevent any bank
from entering it. If legislation which is now pending before Congress should be put into effect by the Board,
these reserve requirements would be made even lighter
than those contained in the •Federal Reserve Act itself.
What I have just said may be considered as bearing
primarily upon the case of a State bank which is just
organizing, has not become involved in any business
transactions or complications, and is considering for the
first time the question whether it shall affiliate itself
with the Federal Reserve system or not. But, as a practical matter of fact, such banks are few in number. The
question must be discussed from the standpoint of the
State banks which have been in existence for years past,
and which are active, going concerns, their funds involved in various transactions, and their credit committed to the support of various enterprises. What of
such institutions? In a general way, I may say that it
has been found that the two principal obstacles to the
entry of State institutions into the Federal Reserve system are as follows:
(1) The existence of a large element of real estate loans in the portfolios of the Institutions;
(2) The existence of what are called "excessive
loans," by which is meant loans to single persons or
individuals, greater than the amount permitted under the National Banking Law.
It has been rightly assumed by the State institutions
that they ought to eliminate these two grounds of criticism if they expect to enter the system. A good many
have suggested that they be given a reasonable amount
of time to comply with the requirements of the system,

it being recommended that such time should include a
period ranging from six months to three years. It is
probable that a good many Institutions could, if they
chose, get ready to enter in much less than a year, while
there are others that could not successfully prepare
themselves without a much longer period than that
Some able bankers have told me that if they were given
a very reasonable extension of time within which to
bring their assets into conformity with the requirements
of the National law and of the Federal Reserve Act,
there would be no doubt that they would enter the system in large numbers, either at once, or as soon as the
new banks were placed in practical operation. Whether
they would do so or not, is, of course, simply a matter of
opinion, but in the absence of definite information on the
subject, it may be assumed that they would do so, since
this is manifestly the view of many able State bankers
who are entirely independent of one another and who
come from sections of the country so widely separated
that it cannot be assumed that they have merely taken
their ideas from one another.
If it be supposed that the opinion thus expressed is
approximately correct, then the question arises whether
the Federal Reserve Board has the right to, or having
the right, ought to, grant the concession that is called
for. The Board has taken no action in this matter, and
no one can or ought to try to predict what is likely to
be done. Exactly how far its powers would permit it to
go may be an open question. Without seeking to pass
upon questions which are still sub judice, it can only be
stated, therefore, that all thoughtful men, studious of
the interests of the banking community and of the reserve system, do undoubtedly desire to see a large number of State banks included in the list of member institutions. Personally, it is my very strong hope and belief
that a large number of them will be thus brought in, and
under conditions which they can reasonably be expected
to submit to during the transition period.
It will be observed, however, that all that has been
said thus far has been based upon the assumption that
the banks thus seeking to enter the system are banks of
the same general kind or description as those which now
constitute the rank and file of the member banks to-day.
That is to say, it is assumed that they are commercial
banks. On even that point I think there is some confusion of thought in some parts of the country, and possibly among certain groups of bankers elsewhere. The
Federal Reserve system is essentially intended as a commercial banking system. It is therefore not desirable
that any bank should enter the system unless it is doing
or intends to do a commercial business. All those institutions which are engaged in operations that render it
unnecessary or undesirable for them to comply with the
commercial requirements, are, ipse facto, outside the
range of banks that will be much benefited by memberkship. Although, technically speaking, every State banwilling to comply with the law may being institution
come a member of the Federal Reserve system, it is not
desirable that those should do so whose business is essentially of a different type from that of the commercial
either
banks of the country and which are, consequently,
their cusforced to make a sacrifice, thereby subjecting
order to come
tomers to discomfort or inconvenience in
to difficulty
in, or which are in some other way subjected
In a word, no State institution ought
as a result of it.
Reserve system unless
to think of entering the Federal
distinctly commercial type. Granted
its business is of a
that, there is every reason why it should come in, but
granting that its business is of a different type, the case
changes.
Thus, not only are the State institutions desired as
members in it, but also the effort of the system, and the
real test of its success will be found in the question
whether it modifies the banking situation, the credit situation in this country so that there is a better condition

TRUST COMPANY. SECTION.
of things, not merely for its members, but for those who
are outside of it.
As you know, the system itself does not undertake to
any business with the individual man, except in those
open market transactions where the institution having
surplus funds, which it is not called upon to lend to its
regular members and depositors, that is, the banks, want
to employ those funds in some way, and so enters upon
the market and purchases paper, either in foreign exchange or in domestic operations, such as crop moving,
or in the purchase of local bills that fall within the definition of the Act. But that, of course, is incidental to
its main purpose, which is re-discount. And in re-discounting the system will fill, if it does succeed in so radically modifying the banking situation that men will directly profit by it in lower interest, in more uniform
terms of discount, no matter whether they have any direct dealings with the Federal Reserve Bank of their
district or not.
It seems to have been supposed by some banks that
they must enter the.Federal Reserve system in order to
get the benefit of it. That is only partially true. If the
Federal Reserve system attains the objects for which it
Is intended, it will do so because of the fact that it modifies the whole banking situation. It will provide a market for commercial paper and will tend to bring discount
rates to a degree of uniformity that has never before
been possible. When the conditions are such throughout
the country that commercial paper of known value can
be marketed, and when, through the development of the
principle of combined reserves, panic dangers are largely
eliminated, every institution, whether a member of the
reserve system or not, will get the benefit of the improved situation. Of course, this result cannot be
reached unless a sufficient number of commercial banks
are joined together in the system. Enough are already
members practically ,to insure this state of things, but
the assurance will become more and more distinct as
more and more of the commercial banks join. Should
they all enter, the system will gain no additional
strength by the incorporation of members whose business is of a primarily investment character, even though
they technically comply with the reserve requirements.
Neither will tile institutions themselves profit particularly by such membership. They will get the advantages
of the system in any case by being enabled to borrow under more favorable conditions from the member banks
which have rendered their own assets more liquid
through their own membership in the system, and have
thereby enabled themselves readily and regularly to af• ford such aid as may be asked for by their banking customers. When we hear,the statement, therefore, that it
is to be hoped that all institutions will ultimately become
members of the Federal Reserve system, the wish must
be regarded as based on enthusiasm rather than on
knowledge.
Those who say they contemplate the time when all
banks will become members of this system, to those I
should simply say there is no use in any such condition
of affairs either for the sake of the non-commercial institutions, who are thus thought of as entering, or for
the sake of the system itself. If the system is successful, it is successful because it is a live system, because
every member of it is actively engaged in doing business
with it. That is, through all of its members it is constantly touching the business of the country. The system will not help the community, will not help the member banks, if their business is not of the type Which the
system was intended to promote, and whose development
it was prhuarily framed for the purpose of assisting:
In what I have said thus far I' have merely outlined
the conditions as I think they must appear to a business
man. But your committee has also asked me to consider
the probability of the future. This leads into the realm
of prophecy, and I am thoroughly aware of the dangers

145

it involves. It is, however, possible to express a few
opinions in regard to the general situation. At the present time, a moderate number of State institutions of all
kinds have affiliated themselves with the system, including both banks and trust companies. Without giving
exact figures it is fair to say that thus far only a very
small percentage of State ingtitutions has seen fit to join.
Two questions arise in this connection, the one why more
have not joined; the other whether more will join in the
near future. Many persons regard the smallness of the
number of State institutions that have already joined as
indicating that the system does not appeal to State
banks. I have already indicated some reasons for thinking that this should not be the case, and in fact, for believing that it is not. It may be inquired, what then is
the reason why so few State institutions have become
members. In general, my answer to this would be that
the State institutions have not joined simply because
they did not have to do so. The banker, above all, is a conservative. His function is that of supplying conservatism
in business. He insures credit; he guarantees that other
men's judgments are more or less correct. If left to himself, he will move slowly and look before he leaps, and
his mistakes will be those which grow out of adherence
to routine rather than those which are due to rtishneeS,
haste and desire for change. A good many State bankers who have not had the compelling motive for coming
into the system at once that was felt by the national
banks have, therefore, waited to see how the situation •
would develop. As nearly as I understand, many are
now on the margin of doubt. If conditions open favorably, they will naturally be attracted into the system in
considerable numbers; if the reverse, they will probably
prolong their period of waiting. Believing as I do that •
the Federal Reserve system will be made to operate successfully from the start, my disposition is to think that
there will, at an early date, be many new members who
will come from among the State banks, and that they
will join within a comparatively short time after the
banks are actually open. Assuming, however, that such
should not prove to be the case, and that no rapid movement of State institutions into the system occurs—what
then?
Of course, I state that, as I said, with all hesitation,
recognizing that it is an opinion about the future. During the past few months the rapid rush of new conditions
in the financial and business world has been such that
I should say eveii those who thought they-could tell what
was going to happen thirty days in advance must be
pretty thoroughly chastened by now. I would not even
forecast what a day might bring forth, but this may be
spoken of as possibly an indication. .
It is probable that State bankers who have what to
them seems a good reason for postponement of action,
will continue to find such reasons for sometime to come
and will not bestir themselves to join the system until
a very distinct, fresh motive is afforded to them for so
doing. What will that motive be? It seems to me that
the motive is hardly likely to be found in the mere lack
of opportunities for re-discount. If the re-discount plan
operates as it is expected to, State banks will get the
benefit of it indirectly, by finding themselves able to dispose of their paper on favorable terms in the open market without necessarily going to a Federal Reserve Bank
for their accommodation. It is rather to be expected that
the motive tending to lead State bankers to enter the
system will be found in the clearing function. If the
clearance provision in the Federal Reserve Act proves
successful, it may be expected that business will be transferred to the member banks by those who will appreciate
the immense advantage open to them as a result of the
provisions freeing them from the oppressive conditions to
which they have been subjected in regard to domestic
exchange. It will be imperative for State banks to place
themselves upon as good a foundation for appealing to

146

BANKERS' CONVENTION.

the *public in this regard as that upon which the member banks rest. We may say, therefore, that the early
entry of State banks into the system depends in a very
large measure on the way in which the clearance feature
is handled and the extent to which the clearing function
is taken.over by the Federal Reserve Banks, under instructions from the Federal 'Reserve Board. Provided
that this work is undertaken courageously and successfully, the result will be to enlarge very greatly the membership,of the Federal Reserve system.
You will recall the case of the Suffolk Bank system of
Massachusetts early in the last century. You will remember that the conditions at that time existing in New
England were such that one could throw a stone in almost any community and it would be more likely to hit
a bank than almost anything else. And you recall that
bank notes were then issued by those institutions and
shipped to a distance in the confident expectation that,
with transportation as it then was, it would take a great
while for them to come home again. Under those conditions, the Suffolk Bank undertook, as a result of joint
agreement on the part of banks of New England, to redeem the currency of the State Banks of Massachusetts
and adjoining States ultimately. And it will be recalled
that every bank joining in this scheme was required to
keep a deposit with the Suffolk. They redeemed its
notes at par in Boston. Occasionally a bank tried to
cut loose from the system, but it almost always appeared
that under such circumstances its note currency was limited to a very small radius around the home office of the
bank, for the simple reason that the bank belonging to
the Suffolk system had secured their currency, which was
good all over the district through which this combination
of banks was operating.
To-day we do not use very many notes. We think of
the note as an important matter, but that is largely habit
rather than anything else. We get out notes in time of
panic and distribute them with the belief that some good
is being done; but is not that very largely what you call
a psychological way of dealing with the situation? The
real currency to-day, of course, is the bank deposit or
check. Now, if the theory of the Federal Reserve system is carried out successfully, then you will see the
same proposition carried into effect in each Reserve
Bank district that was seen in the case of the Suffolk
Bank System more than one hundred years ago. That
is to say, you will see the modern application of that
idea, for there is nothing new in this world, and the ideas
of banking under discussion and carefully thought-out
approach more nearly to a scientific basis than those of
any other line of business. What is trying to be done
in the Federal Reserve system as to domestic exchange
has been done in the past, has been worked out successfully, as applied to bank note currency. Can it not also
be applied to the modern anologue of bank note currency,
assume that idea is carried into effect as was intended?
Now, will not that result in leading many State banks
to come in, in order that their credit may have the same
scope and extension as that of the Federal Reserve member banks? Will not the State banker want his depositors to know that a check drawn upon him by them
will have the same breadth of circulation, will circulate
just as favorably as the check drawn on a National or
State bank which is a member of the system? If so, will
.
it not be a decisive consideration with many others who
are on the margin of doubt as to whether they should
' enter the system?
reaIt seems to me that if this plan is successful, and
into effect, that that must almost necessonably carried
sarily be the case.
opinion
This opinion I advance simply as a personal
and under the restrictions and limitations already outlined. I do not pretend to foresee or predict the future;
I analyze only the situation as it appears to me to-day.
Another question of longer range, and of equally great

moment, is this: Will the Federal Reserve system tend
to enlarge the national system of banking, or to limit it?
In other words, will the 'future of State institutions under the Federal Reserve Act be a future of a gradual
conversion into national banks, or will the State institutions find their ranks gradually enlarging until ultimately the banking system of the United States consists
of a body of banks organized under State law and federated together in twelve Federal Reserve Institutions,
National Banks being either extinct or on the road to extinction? In much of the banking discussion of the past
two or three years, it has been stated that the drift of
things was toward the elimination of the National bank.
This was on the ground that with the bond basis for
currency issue definitely removed, there would be no particular reason why a National bank should exist, while
with the privilege of membership in the Federal Reserve
system open to State banks, it would be largely a matter
of indifference under which system an institution might
organize. At times it has seemed to me that those who
thus argued had a rather substantial basis for their predictions. And yet since the adoption of the Federal Reserve Act, the national system has grown rapidly. During that time there have been organized about 104 institutions. And this rate of growth is essentially the
same as in recent years.
Time was when it was stated that no National bank
would enter the system, they would rather give up their
charters, but that did not prove to be the case; and so
far was it from being true that, during the past year,
there has been an even more rapid growth in the number of National institutions than there was during the
year preceding or during the year preceding that.
,There seems to be no disposition by established banks
to leave the system, but on the contrary, the process of
new organization continues as I have noted. It may be
inquired whether this is not due to the fact that long
experience has not been had with the new system, so
that men naturally tend to follow in the groove marked
out by custom, even though there are factors working
against that success.
Of course, one would feel that that would be applicable only in small and remote communities, and that it
could not be true in the larger centers of population.
Moreover, one would feel that with the keen, alert view
of men subject to the highly competitive conditions—
which is true of the banker more than any other man,
despite the assertions of many trust—I say that with intense competition existing in the banking business, one
would expect a man organizing a bank to look into the
situation, and one would not expect to see men go into a
system that was obsolete or in which the advantages
were distinctly minor.
Were the question to be answered in the affirmative,
we should have to conclude that the probable relation
between National and State banks under the Federal
Reserve system and the relative growth of the two
groups would be a matter for future determination as to
which no positive opinion could be expressed to-day. To
some extent this is undoubtedly the situation. Some
States have already been making vigorous efforts to hold
their own banks under State law. An example is seen
in the case of the State of New York, which has recently
liberalized its banking act, shaping a piece of legislation
which some believe is more favorable to satisfactory
banking than the National Act as modified by the Federal Reserve Act. Observe, however, that this action has
been taken in order to prevent State banks from converting to National. The problem before us just now is
the converse of that, and is, whether there will be a drift
of National institutions into the State system. It would
seem that there is good ground for believing that as a resuit of banking discussion and largely in consequence of
the unifying influence of the Federal Reserve system,
there will be a much stronger drift than heretofore to-

TRUST COMPANY SECTION.
ward standardization of bank examination and of banking legislation. The Federal Reserve Act will have a
very powerful influence in bringing about uniformity of
conditions in examining banks and in controlling them
generally. If such uniformity be rightly developed, may
it not be supposed that banks already holding either a
State or a National charter will continue as they are
now? May it not also be assumed that, there being less
variation of the conditions under which the two systems
are operated, the choice whether to enter a State or National system will be of relatively trifling importance,
so that banks will enter one or the other in very much
the same ratio as at present, or perhaps in substantially
proportionate numbers?
It seems to me that this is the direction in which conditions are drifting, looking at the matter from a longrange standpoint. So long as the State banks are allowed to become members in the Federal Reserve system,
and so long as the effort to standardize National and
State banking legislation is in progress, I do not see why
one set of conditions should not offset the other, and
each system continue fairly well to hold its own.
In other words, I think the tendency in this country
is the hopeful and optimistic one, and it is to grade
things up to a certain level, and not down. Time was
when a bid was map for the organization of banks, by
giving as poor legislation as they could, and by subjecting the banks to as little annoyance after the system had
been organized as possible. Nothing is more hopeful
than the disappearance of that tendency, and the efforts
on the part of many centers to get satisfactory laws for
banking, and the appeal of existing banks to enter their
system on the ground that they have a good and an effective law which protects the legitimate, conservative
banker against his fellow who is not quite so much so,
and which places him in a position to appeal to the public as being controlled by legislation which is quite as
stringent and quite as effective as the National Act. Of
course, there are many States in which that is not true
to-day. That is, not all of our laws are equally advanced; but it seems to me that a careful review of the
situation, of the tendencies during the past twenty years,
and particularly during the past ten years, shows a
pretty steady advance in many States towards such uniformity. And, in that connection, it is only fair to say,
it seems to me, that the efforts of the American Bankers
Association and of State Bankers' Associations, dominated as such associations almost always are by men of
foresight and judgment, has been a powerful influence
in bringing about that tendency to grade things up instead of to grade them down.
It is not true, then, in my judgment, that Institutions
will drift out of the National systems and drift into certain of the State systems simply because the latter may
be lighter in their requirements than the National.
It is recognized, however, that we are speaking of the
future, nothing positive can be said, and no one can reasonably dogmatize about the probable outcome. Conditions may suddenly change, as they have in the past,
and if they do, a new and unexpected drift may at any
time be given to the course of banking development.
From what has been said, you will see that I am not
inclined to speak very confidently or positively of the
future on any of the points under discussion. In fact,

147

the present is of more importance than the future, because what happens later is the direct outgrowth of what
is done to-day. For the present the problem is perfectly clear. It is, from the standpoint of the Federal Reserve system, to extend its borders as widely as it legitimately can among commercial institutions, bearing in
mind and having due regard to the requirements of commercial banking, and always with the desire to take in
only sound and well-managed institutions, as well as
those whose business is of a type that conforms substantially with the provisions of the law. From the standpoint of the banks, it will evidently be worth while for
State institutions to conform to the reasonable requirements of the Federal Reserve Act in the matter of capital, reserve and examination, if by so doing they can get
any real or substantial advantages for themselves. That
they can get such advantages, not merely in re-discount
but also in clearing their items and in performing various other banking operations, and that they can materially advantage themselves and their customers by
becoming members of the Federal Reserve system, is, I
am sure, the general belief of those who are most familiar with National and State laws. Uniformity of
management, simplicity in domestic exchange, ability to
bring aid to those institutions or sections where aid is
needed and to afford opportunities for fluid and legitimate investment to those parts. of the country which
have superabundant funds, will be promoted by the extension of the membership of the Federal Reserve system. When all has been said and when every consideration has been taken into. account, I believe that the
thoughtful and nonpartisan banker will conclude that
the question of membership is one that goes beyond the
bounds of immediate business profit. In the course of
my remarks to-day I have endeavored to consider the
problem with some little detail from the business standpoint. But banking on its higher side is, in my view of
the case, a profession. It has its professional standards
and its professional requirements. It performs an important public function. The banker must, therefore,
consider not only what dividends he can make for his
stockholders and what losses he can prevent them from
incurring, but he must also think of the fulfillment of
this public function in the best way. In the United
States we have long suffered from incompatibility and
divergence of banking methods. An opportunity Is now
given for standardization and for improvement of practise. Should not the State banks of the country who
have so long borne an honorable and distinct part in the
promotion of the country's commercial welfare, and
many of whom have charters running back for a long
period prior to the formation of the National banking
system, stand ready to join in the effort to further the
success and insure the greater soundness of banking
methods in the United States? They can, if they will,
attain these objects by affiliating themselves with the new
system and by helping, through their influence and example, to make it a success. It is, I think, to be hoped
that they may look at the question from some such standpoint as this, and in consequence, give their direct aid
and support to the Federal Reserve system, as well as
draw aid and support from it—becoming members of it
and undertaking to give the fullest possible effect to the
beneficial ideas embodied in the Act of 1913.

Committee and Officers' Reports Trust Company
Section.
Report of Secretary.
To the Executive Committee, Trust Company Section, American Bankers Association:
GENTLEMEN: Your Secretary submits herewith his report for
the fiscal year ending August 31st, 1914.
The financial statement is as follows:
CREDITS.
By Appropriation of Executive Council.
" Sale of Trust Company Proceedings
" Sale of Trust Company Laws
Account Postage and Stationery

88,500.00
58.85
1.00
35.00
$8,594.85

DISBUIts EM EN TS.
Salaries
Postage, Stationery and Printing
Proceedings 1913
Executive Committee Meeting
Rent
Convention Expenses
Legislative Committee
Gold Badges
Traveling Expenses
Telephone and Telegrams
Loving Cup for Retiring President
Sundries

83,910.30
1,102.77
976.96
660.59
605.04
261.32
95.80
66.00
64.15
60.60
125.00
5.55
$7,934.08

Credit Balance

660.77

With all bills paid to August 31st, you will note that there
Is a credit balance of $660.77, which has been transferred back
to the general funds of the Association.
I am pleased to report that while the running expenses of
the office, such as postage, stationery, printing of pamphlets and
circular letters have largely increased during the year, we have
kept well within our appropriation.
The Section has on the Treasurer's book a credit of $1,302.17
as a special account from the profits of the sale of the book
of "Forms for Trust Companies."
I am also pleased to report that our membership has continued to grow, notwithstanding the provisions of the new constitution which made it necessary for a large number of our
members heretofore enrolled in both the Savings Bank and
Trust Company Sections to elect in which Section they desired
to remain. Our membership at this time is 1,201—all companies doing a trust company business, and, therefore, selecting
enrollment in the Trust Company Section.
The reports of your Executive Committee and of its several
sub-committees will inform you in detail of the various and
diversified activities of the Section. Serving as Secretary of
these various committees, I have at all times endeavord to
carry out such work as was entrusted to me and it seems unnecessary for me to refer further to what has been so ably set
forth in these several reports.
On May fourth last there was held the Fourth Annual Banquet of the Trust Companies of the United States, members
of this Section of the American Bankers Association. This
banquet took equal rank with the previous ones as one of the
important banking dinners held during the year in New York
City. There were in attendance 614 trust company officials,
bankers and representative men from thirty different States.
For the information of those of our members who were not
present it is proper to say that the entire expense of these banquets is met by the subscriptions of those present and no expense whatsoever attaches to the Section or to the Association.
It has been my duty and pleasure to serve our membership,
our officers and committees to the best of my ability, and I desire co express to one and all my appreciation of the consideration shown me and of the pleasant relations which have existed during the past year.
The membership at large has more and more called on my
office for information and I very sincerely hope that a more
general understanding of what the Secretary of the Section can
do for its members will prevail.
Respectfully submitted,
PHILIP S. BABCOCK,
Secretary.
Report of Executive Committee, by John H.Mason, Chairman.
To the Members of the Trust Company Section of the American Bankers Association:
MR. PRESIDENT AND GENTLEMEN: Your Executive Committee
begs to report a year of growth and endeavor, of much undertaken and some accomplished in the interest not only of Trust

Companies, members or not of the Section, but of all the banking institutions throughout the country.
The relation of Trust Companies to the Federal Reserve Act,
the onerous duties imposed upon them by the Income Tax Section of the Tariff Bill, the Model Trust Company Law, the
protection of the word "Trust" by State enactment where
necessary, the proper and thorough supervision of Trust Companies by State Banking Departments, the education of the
public as to what Trust Companies are and the varied ways in
which they can be of service to their clients—all these, and
many other matters, have engaged the time and services of the
members of your Executive Committee, and of its several subcommittees.
Reports of these various activities will be presented to you
to-day by those to whom they were entrusted, and your careful
consideration is asked at this time, and later when they appear
In the volume of Proceedings, a copy of which will be sent to
each member of the Association.
Before the new Federal Reserve Act became a law, its provisions were carefully considered at meetings of your Committee,
and your officers and individual members made frequent visits
to Washington to consult with the Banking and Currency Committees of the Senate and House. The guaranteeing of bank
deposits, the granting to National Banks applying therefor the
right to act as trustee, executor. administrator, etc., the double
liability imposed on Trust Companies and State Banks becoming members of the Federal Reserve system and many other
matters, were indeed live issues.
In the final form of the Act the guarantee of bank deposits
was eliminated, also the double liability of shareholders in
State Banks and Trust Companies which might become members of the Federal Reserve system, except in so far as such provision was already embodied in State laws. These desirable
liminations were, it may safely be said, in part due to the activities of your Committee, and of individual public spirited
bankers throughout the country.
Under the Act the Federal Reserve Board has power "to
grant special permit to National Banks applying therefor, when
not in contravention of State or local law, tile right to act as
trustee, executor, administrator or register of stocks and bonds,
under such rules and regulations as the said Board may prescribe."
It is understood that the purpose of this provision is to permit National Banks to serve their constituents in localities
where there are no Trust Companies, or other institutions, authorized to act as trustee, executor, administrator, etc. It is
quite doubtful whether many Banks will avail themselves of
such fiduciary powers. Even if they do, it should not affect, to
any appreciable extent, the business of the Trust Companies.
In many States, an enabling act must be passed before the National Banks can avail themselves of the Trust functions
granted under the Federal Reserve Act.
The Income Tax Section of the Tariff Bill, due mainly to the
"collection at the source" requirement, has proven most burdensome to the Trust Companies of the United States. Under
the provisions of the Act, the paying company, practically, becomes the collector of the tax for the Government. It receives
absolutely no compensation for its services and, in fact, is not
reimbursed for the actual expenditures incurred. This seems
markedly unfair.
The Rules and Regulations, issued by the Treasury Departof
ment, required no less than twenty-two forms of certificate
ownership, many of which seemed so unnecessary that your
most
Committee urged upon the Department that it withdraw
others. After
of the forms issued, and modify and simplify the
revised
careful consideration, the Department issued a set of
ten, and they
forms, reducing the number from twenty-two to
originally
forms
are undoubtedly a vast improvement over the
there has been
issued. On behalf of the Trust Company Section
of certiTreasury Department a single form
submitted to the
would meet every
ficate of ownership, which it is contended
as the requirements
provision of the Income Tax Section as well
of the Rules and Regulations.
Section held in Boston
At the meeting of the Trust Company
year, a draft of the Model Trust
on the 7th of October of last
prepared by Thotnas B. Paton,
Company law, which had been
was submitted.
General Counsel of the Association,
after considerable discussion,
You will no doubt recall that,
entire matter be referred back to the
it was moved that the
as it may give it, and
Executive Committee for such action
the meeting of the Executive
to report to this meeting. At
of April, very careCommittee held at Hot Springs on tile 30th
this matter. Certain members
ful consideration was given to

TRUST COMPANY SECTION.
of the Committee were opposed to the section advocating any
particular law, or putting itself in the 'attitude of recommending to the legislatures of the different States the enactment of
features which, while perhaps in themselves admirable, might
not be adapted to the conditions in the several States; others
were strongly of the opinion that the Section should not hesitate to stand for all the provisions in the draft of the law, and
it was, therefore, decided to refer the matter to a Special Committee, that Committee to make its report direct to the members
assembled in the annual Convention. The Chair appointed on
that Committee
Fuller, John W. Platten and
Messrs. F. H. Goff, It. W. Cutler, Oliver C.
Uzal H. McCarter,

and, in due course, you will have the privilege of hearing the
Committee's report.
The new Constitution of the Association, as adopted at Boston, provides that members can only enroll in one section.
In accordance with this provision, notices were sent to five
hundred and ten (510) members of the Association who were
enrolled in the Trust Company as well as the Savings Bank Section, advising that they must elect in which Section they desired to remain. It is gratifying to report that, of these companies, over sixty-five per cent, elected to remain in the Trust
Company Section, giving it a membership in excess of one thousand, and thereby entitled the Section to two members on the
Executive Council of the Association. The membership in our
Section at Boston was one thousand, three hundred and sixtytwo (1,362) and is now, under the new provisions of the Constitution, with the additions during the year, one thousand two
hundred and one (1,201).
We are also pleased to report that the Savings Bank Section
has a membership largely in excess of the one thousand required, and it also has two members on the Council.
There is to be presented at the General Convention at its
meeting to-morrow, an amendment to the Constitution, as follows:
Section 1. "Sections of the Association may be authorized or confirmed
and regulated by By-law, for the promotion of the welfare of the different busi
ness classes of the membership, and any member of the Association may become
a member of such Section or Sections whose constitutulon or by-laws permit of
ouch membership as may best benefit such member's business interests; provided, however, that NO MEMBER SHALL HAVE THE RIGHT TO VOTE
FOR OFFICERS IN MORE THAN ONE SECTION and shall at the time
of becoming a member in more than one Section designate in which Section it
will exercise the right to vote for officers by giving notice to the Secretary of
such Section, which designation cannot be changed until an intervening annual
election, and when any Section is authorized by by-law the same shall, upon
application made, be established by the Executive Council."

Your Committee earnestly recommends that, when this
amendment is offered, you give It your approval and vote.
The past year has proven one of excessive legislation, both
Federal and State, and for the immediate future there seems
to be no promise of a lessening. Laws have been enacted that
are not based on sound economics, others have been enacted
through prejudice and lack of accurate information. How are
we to correct this and aid in a future betterment? By a
higher appreciation of our citizenship, and by assuming our
obligations to endeavor to form a more equitable public opinion.
You and I have a responsibility to turn the powerful forces
of to-day into channels that will make for the good of all, and
not for only the few. There has seldom been a time when patriotism was so needed as NOW, and that, in its true sense,
means a submergence of self-interest which is surely bound to
create a public opinion constructive for all time, and not, as
in the recent past, destructive of business activity.
Then, too, we must bear our part in the Progress of the
World.
In a few months from now, the democracies of Europe will
be crying out for a return to normal conditions.
Men will want work, they will want wages, and all will
want food.
The normal conditions which were shattered by the declaration of war were the fruit of centuries of evolution and work.
In due course, the "To-morrow of Readjustment" must come,
and we will need our full strength to do our share.
To aid in accomplishing this task of "World Reconstruction"
and the embracing of unthought-of opportunities for usefulness
and expansion of trade, there must be a unison of purpose and
action on the part of our Government and the business men of
the United States.
If we grasp our opportunity, and I believe we will, there will
then dawn an era of prosperity, the like of which we have
never seen before.
Report of the Committee on Legislation.
Mr. President, Members of the Trust Company Section :
The Membership Committee on Legislation consists of the
three Executive Officers and two ex-Presidents of the Section.
As these gentlemen are all on the Executive Committee of the
Section, the work of the Committee on Legislation must necessarily be largely included in the report of the President and
the Chairman of the Executive Committee. There was, however, some special work undertaken by the Committee on Legis-

149

lation which it might be proper to mention in this report. The
Convention in Boston on October 7, 1913, was held shortly after
the passage of the Income Tax Law, and, while the members
of the Trust Company Section had no serious criticism of the
principles of an Income Tax, or of the rate of taxation, they
did object strenuously to the method of its collection. This
was voiced most strongly during the discussion in which many
members participated. In accordance with what they felt to be
the earnest wish of the Section, the members of the Committee
on Legislation, immediately after the close of the Convention,
wired to the Treasury Department at Washington requesting interpretation of certain clauses in the Income Tax Law which
were not clearly understood, notably those which related to
the collection of coupons "at the source." No literature had
been issued by the Government up to that time, and it seemed
desirable and necessary in order to carry out the provisions of
the law intelligently that we should know at the earliest possible moment exactly what the Government required. The bill
became operative on November 1st, and, in spite of the fact
that before that date a special Committee visited Washington
to urge the importance of sending instructions to the Trust Companies and Bankers of the Country, nothing was given out until
five days previous to the time when the law went into effect.
It was immediately observed that the law was even more
cumbersome than we had feared, and that it bore very severely
upon the Trust Companies, and especially upon those in the
larger cities. Application for interpretation of various clauses
met with decisions on the part of the Commissioner of Internal
Revenue, which in numerous cases were reversed in a few days
after their issuance. In the spirit of progress many Trust
Companies issued more or less elaborate books of instructions
for the benefit of their clients; but, in most cases, these became
worthless because of decisions, which, after having been extant
for a few days, were reversed by the Internal Revenue Department. The Trust Companies, nevertheless, kept hammering
away at the Department in Washington in order to obtain all
the information possible. It was, however, only after weeks
of work, with more or less bungling, that the collection of the
tax at the "source" began to run at all smoothly. We feel
that, in some measure, it was in consequence of our suggestions
that certain methods of collection were simplified. The number
of forms was reduced from twenty-two to ten, and the two
forms most largely used, "exemption claimed" and "exemption
not claimed," were by law directed to be on different colored
paper—yellow and white respectively; and these changes have
done a great deal toward simplifying the work. We trust that
the single form suggested by our Committee may in time be
adopted by the Government, and thus a still further reduction
in number and variety of forms may be made.
In the early part of the current year, when the Federal Reserve Act was under discussion, we learned that, under the
Senate Bill as suggested, State Banks and Trust Companies
could continue during the thirty-six months' transition period
to keep a part of the reserve with any member bank in a
Reserve or Central Reserve City, but that in the Conference
Committee the word " member "" was erased and "National
was inserted in its stead. Your Committee deemed this an
injustice. It would work unnecessary hardship on the country
Trust Companies and State Banks wishing to join the Reserve
Association and having their balance on deposit in Trust Companies and State Banks in either Reserve or Central Reserve
cities, to be forced to change such balances to National Banks;
and it would also be unjust to force the Central Reserve and
Reserve City Trust Companies and State Banks coming into
such a system to lose the deposits of their country clients.
Any Trust Company joining the Reserve Association as a
Member Bank, keeping up the reserve requirement according to
law and being subject to national examination, should be a
competent Reserve Agent for any other member of the Association, and should be placed on the same basis as the National
Banks. Your Committee on Legislation, aided by certain influential members of the Section called upon for the occasion,
were able to convince the Committee that such discrimination
was unfair—and the bill as passed, contained, as desired, the
word "member" instead of the word "National."
Another important matter was undertaken by certain members of the Committee on Legislation, after war had been
declared in Europe, and related to the great depreciation in
gilt-edge securities held by Trust Companies, Savings Itanks,
.
and Insurance Companies, both as investments for their own
funds and for clients in trust. In consequence of the cataclysm
abroad and of the frenzied sale of our securities, Railroad bond
investments which had been considered "bed rock" depreciated extensively in value, and by the closing of the Stock
Exchange, which occurred on July 30, assets which were believed to be "liquid," and easily realized upon in case of
emergency, were made positively unmarketable. During the
time which has since elapsed, demands to a considerable aggregate amount have been made by depositors, and inasmuch
as no investment assets could be sold, the situation became
most acute. It was realized that should the Stock Exchange
be reopened a flood of securities would be returned to us by
the badly alarmed European investors, and this would result

•

150

BANKERS' CONVENTION.

in a still further decrease in bond values. At a conference,
where important interests were represented, a committee was
appointed to wait upon President Wilson and urge the necessity of promptly taking some action toward sustaining Railroad credits. This we felt should be the first step toward establishing an abiding faith, both at home and abroad, in the
stability of our investments. If the European holder of our
first-class Railroad securities could be made to believe firmly
that the administration was disposed to aid the Railroads to
a point where their net earnings would provide beyond peradventure for their interest and dividends, and that his money
was safer on this side of the Atlantic than it was at home, he
would be disposed to hold his investments, and not sell them
in our markets when the Stock Exchange was opened. Consequently the basis of value for our Trust Funds would be
more stable and dependable. This committee 'met the President by appointment—and in a strong forceful manner. Letters have also been written and interviews have been held with
members of the Interstate Commerce Commission, bringing the
subject to their attention along the same line. We sincerely
hope that the result may be what we all must earnestly desire.

Report of Protective Laws Committee.
Eleven States have held regular legislative sessions in 1914.
In Vermont the session does not convene until late in the
year.
In Massachusetts it was made unlawful after 1917 for any
Trust Company to hold more than 10 per cent, of the capital
stock of any other Trust Company. The State also passed a
law permitting its Trust Companies to join the Federal Reserve Association and making such changes in the matter of
required reserves, location of branches, acceptances of bills
of exchange, etc., as is necessary to secure the benefit of this
National legislation.
Kentucky, Louisiana, New Jersey, Ohio and Virginia took
similar action, authorizing their State institutions to become
members of the Federal Reserve Association.
The legislation in the State of Virginia does not expressly
refer to Trust Companies, unless they would come under the
designation of "banks chartered by the State of Virginia."
Chapter 310 of the Virginia laws provides how Trust Companies may be incorporated and gives them general powers
for the purpose of doing a Trust Company business in the
State, and permits them to engage in general banking.
Maryland's contribution to new legislation was an act providing for the deposit of State public money in Trust Companies
as well as in banks, and an amendment to existing laws which,
gives Trust Companies banking powers.
In Georgia no additional protective legislation was secured
other than the passage of the fraudulent check law.
A number of our Association's protective measures were
passed in Louisiana.
Mississippi has at last established a Banking Department
providing for examination, regulation and control of all banks
and Trust Companies other. than National Banks and Postal
Savings Banks. This State also passed a Bank Guaranty Act,
thus going from the extreme of no protection of bank deposits
to that of making the State indirectly responsible for them.
In New York, all State Banking Laws
were ably revised by a
competent Commission.

At a special session of the Ohio Legislature, State Banks
and National Banks were prohibited from acting as administrator, executor, trustee or registrar, and it was provided that
Trust Companies joining the Federal Reserve Association should
exercise same trust powers now conferred upon them by law,
and other State Banks and National Banks may enjoy powers
in the matter of acceptance and execution of trusts which are
now conferred by law upon Trust Companies, it being obligatory upon such State and National Banks to comply with legal
requirements imposed upon Trust Companies in connection
with the execution of these trusts.
In Rhode Island, an amendment to the banking laws was
passed directing Receivers of Trust Companies in liquidation,
after the declaration of final dividends, to pay all funds to
the General Treasurer and deliver a list of unclaimed deposits
and dividends to the General Treasurer, this list to be advertised each year for three years.
The Secretary of the South Carolina Bankers Association
advises that no laws were passed in his State this year relating to Trust Companies.
Mr. John Poole, Secretary of the District of Columbia
Bankers Association, advises that Congress has not passed
any legislation this year which directly affects banks in the
District. Presumably this includes Trust Companies.
An effort to secure an amendment to the Trust Company
law in Louisiana, similar to the Ohio law, under the terms
of which charitable trusts or educational trusts will be permitted, failed, but we are assured that the result was due to
other causes than a desire upon the part of the legislators to
defeat the bill.
During the year the Committee has taken up the question
as to whether or not it would be desirable to obtain legislation
in all States permitting a Trust Company to accept and execute
trusts in any foreign State as well as in the State in which
it is created, but in view of the provision in the Federal Reserve Act which allows certain Trust Company privileges to
National Banks when not prevented by State statutes, and
in view of the fact'that there will likely be an effort made in
several' of the States to curtail these possible privileges, it
was deemed inadvisable to press the question at the present
time.
As stated in our last year's report, the Committee finds
that much proposed legislation detrimental to Trust Companies is introduced by persons who lack intelligent information regarding the management and administration of our
companies' affairs.
Occasionally such legislation is urged from improper motives, but these instances are extremely rare, and we believe
that if Trust Company officials would make the effort necessary
to come into closer personal contact with the legislators in
their several States they would be able to prevent the introduction of much unnecessary and undesirable legislation.
The Committee desires to thank the General Counsel and
the Secretary of this Section for their assistance and advice.
Respectfully submitted,
E. D. HULBERT,
SAM. W. REYBURN,
HERBERT A. RHOADES,
LYNN IT. DINKINS, Chairman.

Detailed Report of Proceedings.
Nineteenth Annual Meeting TRUST COMPANY SECTION, Held at Richmond, Va., October 13, 1914
JOINT SESSION OF THE TRUST COMPANY AND SAVINGS
BANE SECTIONS.
RICHMOND, VA., October 13, 1914.
The Joint Session of the Trust Company and Savings Bank
Sections met in the Auditorium of the Jefferson Hotel, on
Tuesday in the forenoon, October 13, 1914, at 10 o'clock A. M.
PRESIDENT J. F. SARTORI in the Chair:
The meeting will please come to order. This is a Joint Meeting of the Trust Company and Savings Bank Sections of the
American Bankers' Association. We will open the meeting with
prayer by the Rev. Dr. J. J. Gravatt, of the Holy Trinity Episcopal Church, of this city. The audience will please arise.
PRAYER
REVEREND DR. DRAvATT: Almighty, Everlasting God, the source and
author of all our blessings, we acknowledge Thee as our creator and
our Father. We know that all things come from Thine hand; the
gold is Thine; the cattle upon a thousand hills are Thine; and we
are Thine; and we pray Thee to forget all our thoughtlessness about
Tbee, and to fill us with Thy holy spirit that we may do and think
the things that are right. We would beseech Thee, our Heavenly
Father, to look in special mercy upon this world at this time. Some
of our brethren are in the midst of strife and suffering; our hearts
go out to them.
We pray that Thou wilt guide and direct those in authority, enabling
them to put themselves in Thine hands; to realize that they are Thy
servants. And wilt Thou, in Thine own good time, restore peace and
safety where now is war and strife. Succor those that are tempted
and those that are in suffering. Bind up, we besseech Thee, the
broken-hearted. Supply the needs of those in poverty, and let Thy
presence be with those who are wounded and dying. And we would
know that Thou, the ruler of all the world, canst make even man
praise Thee; and may all this cruel strife be overruled by Thee, by
the establishing of an abiding, permanent peace. Give peace, 0 God,
give peace again! And that there may be, as a result of all this, an
acknowledging of Thee by the men of the world, the people of the
land as Thy God, and may there be a great wakening of the spiritual
life.
The world ask Thy blesiing upon the land in which we live, the land
of such promises.
Guide the Chief Magistrate of this country, and those in authority
under him, that in this land we may so live, in this land we
may so labor that peace and happiness, truth and justice, religion and
piety may be established among us for all generations.
Let Thy blessing rest upon this Convention now assembled in Thy
presence. Help them in all their deliberations to an eye single to
Thy glory, the welfare of Thy country, and the uplifting of Thy
people.
May we realize, one and all, that we are stewards under God for
what gifts, for whatever blessings he has bestowed upon U8. And
enable us by Thy grace to be faithful stewards. And may this Convention, meeting in Thy Presence, conducted by Thy spirit and ending
by Thy help, be a blessing to those assembled, and to the country
in which we live, and the world of which we are a part.
These things we ask in the name and for the sake of our dear
Saviour, Jesus Christ. our Lord. Amen.
PRESIDENT SARTORI : I have now the pleasure of presenting
to you Mr. F. H. Goff, President of the Cleveland Trust Company, also President this year of the Trust Company Section of
the American Bankers' Association. Mr. Goff has kindly consented to act as our permanent chairman this morning. Mr.
Goff. (Applause.)
Ma. Gory: Mr. Sartori is wrong. I did not kindly consent.
I reluctantly consented, and naturally because he is more modest than I am.
Gentlemen, we have for discussion in this joint meeting the
question that is of vital importance, not only to the banks, but
to the nation. The attitude of State Banks and Trust Companies towards the newly organized Federal Reserve Association, we are going to discuss it, gentlemen, with just as little
dignity and with just as much informality as may be, because
we want to hear from the different parts of the country and
know what they are thinking about and how they are thinking
about it, and to the end that we may go to the respective institutions a little wiser than we came.
You are going to be honored by hearing from a gentleman
who had much to do with the drafting of the Bill creating the
Federal Reserve Association, a man, who, if I am informed correctly, acted as expert for the Banking Currency Committee of
the House; at one time, and perhaps still, a professor on the
Faculty of Columbia University, lecturing upon the subject of
business and banking; until recently associate editor of the
Journal of Commerce, of New York; and now Secretary of the
Federal Reserve Association. He is to address you on the subject of "The Future of State Institutions under the Federal
Reserve Act."

(A pplause.
I have reat pleasure in presenting Mr. H. Parker Willis.
Mn. WILLIS: Gentlemen, I read somewhere last night that the
American Bankers' Association's gathering here in Richmond
was probably one of the richest associations of the kind in the
United States, and possibly in the world. I do not know about
that, I have not the figures, and I do not think the point is one
of very much importance. What I do feel to be of more importance is that the American Bankers' Association, representing as it does, the united banks of the country, is probably the
most significant, most powerful business body in the United
States to-day. Believing as I do that the control of credit, the
proper apportioning of loans, the sustaining of business by the
assignment of fluid capitol to its use is, in the last analysis, the
factor in business life that controls the direction of industry,
and it seems to me that a body of this kind exercising that
enormous power must be supremely self-conscious of its immense
responsibility.
For some years past I have had the privilege of being associated with bankers as a looker-on at the profession and its
doings, and I have found that among bankers whom I have had
the pleasure of knowing, the Savings Bank and Trust Company
officers contain, among their number, some of the best informed,
most thoughtful men in the whole banking community. Perhaps this was the cause of my own primary interest in the commercial side of the banking business. It has often seemed to me
that if we were a little less strongly interested from a personal standpoint in the management of business, we are more
likely to be detached, thoughtful, and to give purely theoretic
consideration their due weight than those who are immediately
and instantly concerned in the profit side of the business; so,
for that reason I am doubly pleased to be before you to-day,
first, because one could not find a more significant and powerful audience than the American Bankers' Association, nor one
which has a greater capacity for making its judgments effective
in the control and direction of business. I use these words in
their legitimate, good sense; secondly, because I feel that among
the banking profession in this country the Savings Bank and
Trust Company men occupy a position which is second to none,
and which, perhaps, because of its being outside of the immediate line of commercial business, gives them a detached quality
which enables them to make their judgments directly operative
without some suggestion that they are colored in any manner
by personal interest.
The subject assigned me for this meeting is "The Future of State
Institutions under the Federal Reserve Act"; and I have taken
the liberty on account of, as I think, the importance of the subject, of writing down my views on this subject. I shall from
time to time depart somewhat from my manuscript. The subject assigned me is a very broad one, because of the theory of
the Federal Reserve Act, that there should be in the United
States a union of all banking institutions.
In its original conception, the Federal Reserve Act was, by
many, believed to be designed entirely for National Banks; but,
as you know, it has been given a far broader scope than that,
assoand now permits the coming in of State institutions into
ciation with the National Banks, because of the basic idea in
the law, as it finally was passed, to the effect that good and
successful banking reform could never be attained without a
general junction of all banking institutions for the purpose of
performance of certain necessary functions instead of confining
the operation of the law to National Banks.

The Future of State Institutions Under the Federal Reserve
Act, by H. Parker Willis.
[The address of Mr. Willis will be found on page 143.]
CAPTAIN DINKINS (of New Orleans): Mr. Chairman, would
there be any advantage in a State Bank becoming a member of
the Reserve system, whose collateral would not be accepted by
the Reserve System for loan or rediscounts? In other words,
there are numerous country banks whose collateral consists in
mortgages on real estate, and notes and bonds and stock as
collateral. As I understand it, such collateral will not be accepted by the Reserve System?
THE CHAIRMAN: Professor Willis, will you reply to the gentlemen?
Ma. WILLIS: In answer to that, I will call your attention to
what I endeavored to point out about the undesirability of
strictly non-commercial institutions joining this system. Of
course, if a concern has its assets in such form that it cannot
get rediscount, there is little object, I should say personally, in
its joining the system. To do so would be merely, would merely

BANKERS' CONVENTION.

152

have a sentimental value; but practically, of course, it would
not be of much aid, except perhaps on occasions of panic or
some special difficulty when it might have a little more direct
and immediate position to get assistance from the Federal Reserve Banks than it otherwise would be. Of course, ordinarily,
this system, if it succeeds at all, is not to be a stormy weather
system, but it is to work right along successfully. If not, it is
of no particular benefit. An institution that is not abnormally
supplied with assets that enable it to do business with the system right along on a reasonable basis, I don't think has very
much to gain in joining. At least, I do not see that it has.
Does that answer the question? I did not quite hear all your
questions.
THE CHAIRMAN: I think It does.
I think, Professor Willis, I voice the views of all the members of the Savings Bank and Trust Section when I tender you
our hearty thanks for your able and interesting paper.
Ma. WILLIS: Thank you.
THE CHAIRMAN: We invited and expected to have Governor
FIamlin, Governor of the Federal Reserve Board, but who unfortunately found that he was unable to reach Richmond before
to-morrow. However, I will be glad to have Governor Hamlin
know that our grief is lessened by the presence of • Professor
Willis.
We are also disappointed, greatly disappointed, at the inability through George M. Reynolds, President of the Continental and Commercial National Bank of Chicago, to be here.
Some weeks ago he had accepted an invitation, his paper was
prepared, and he expected to be in attendance. Matters relating
to the organization of the Regional Bank in Chicago unexpectedly came up and made impossible his being here. I am permitted to read- a letter from him, briefly giving his views and
attitude with regard to the question under discussion, which is
in reply to a letter from me under date of September 21.
CONTINENTAL AND COMMERCIAL NATIONAL BANK.
CHICAGO, September 23, 1014.
My Dear Mr. Goff:
I have your favor of the 21st instant and have read the
contents
of same with much interest and pleasure.
I fully appreciate with you thht it is our duty to do all we
can
to create a condition which will justify the State banks in becoming
members of the Federal Reserve Association. We can never have a
satisfactory condition in banking in this country until this has been
accomplished.
' On the other hand, the enforced entrance to this system of the
national banks by the Government, thereby putting at the risk of the
success of the system over ten billions of dollars of the banking
power of this country, is so great a change from the old-time conditions, I am rather inclined to feel that. great care and careful deliberation should be given to the subject before State banks generally
undertake to enter the system.
While we all hope and believe that the system can, through some
modifications, be made to be fairly successful, still, until it has been
• tried, the whole matter will necessarily be an experiment, and I cannot help feeling that It would be wiser for .the State banks, representing over fifteen billions, or 60 per cent, of the banking power of the
country, to defer joining the system for a little bit, in the hope
that they may later on go into something that has been tried and
proven to be successful, rather than to go in entirely upon confidence
and hope for the system's future success.
Whatever my feelings are with reference to State banks going into
the system, I want it distinctly understood that I am friendly to the
system as it has been provided for by the law, and shall do everything I can to make it a success, and in any utterance that I make
upon the subject I shall make it clear that I am doing so as a friend
of and not as an enemy of the system.
I believe the plan which you have outlined will, if you can get
the parties named in your letter to respond, do much good, and if it
could be brought about that such a committee as you have suggested
would be given an opportunity to confer with the Federal Reserve
Board, I have no doubt such modifications and changes in the law
could be secured as would make the system satisfactory to the State
Blinkers generally.
With kindest regards and best wishes, I remain,
Yours very sincerely,
G. M. REYNOLDS.
THE CHAIRMAN: I also regret to say that Mr. A. Barton Hepburn, Chairman of the Board of Directors of the Chase National
Bank of New York, owing to a wedding in his family, finds it
impossible to be present. I beg to read a letter from him under
date of October 9, voicing his views with regard to the matter
on our programme.
THE CHASE NATIONAL BANK.
NEW YORK, October 9, 1914.
F. H. Goff, Esq., President, Trust Company Section, A. B. A., Hotel
Jefferson, Richmond, Va.
My Dear Mr. President:
The Federal Reserve Bank Law was duly passed, and in the course
of events will be put into practical operation in the near future.
I believe the law, in the main, to be a good one, and based upon
underlying principles which will work out a better banking, financial
and credit system for the country. It is our duty as bankers and
as patriotic citizens to give to the law loyal support, in order to
enable the same to accomplish the greatest good possible. Its efficiency will depend largely upon the banking power back of the managers of the central reserve board and the various local branches.
It is, therefore, eminently desirable that all, or as many of our bank-

ing institutions as possible, become members of the same, and give
It their practical support.
The law involves many and radical changes from the present methods of credit procedure. It will necessarily take some little time for
the managers to inaugurate this new system and bring it to a state
of efficiency. The system will start with substantially all the national banks of the country. It may be helpful rather than otherwise, if trust companies and State banks refrain from joining at
the outset, and give the managers a little time to get the new system in good working order. The mechanism once established, the
Joining of additional or new banks may be very easily effected. The
test of the law in practical operation may show defects which can and
should be removed by legislation. I have no doubt that Congress will
readily respond to any reasonable demands for legislation of this
character. Of course, the law will be subjected to the closest scrutiny
by business men, publicists and economists as well as bankers, and
any wholesome legislation required will doubtless have back of it a
consensus of opinion demanding its adoption.
I hope that in the near future barking institutions generally may
become members, in order that the system may represent the concentrated banking power of the country. This is desirable, so that
the Federal Reserve system may be thereby strengthened in its power
to serve the public interst.
For the above reasons, I assume that it will be agreeable to the Central Reserve Board if State banks and trust companies refrain for
a little time from joining the system. It is, however, a live question to be kept before all such institutions and before the public, a
question for careful deliberation, and as soon as may be, I trust for
favorable affirmative action.
Very truly yours,
A. BARTON HEPBURN,
Chairman of the Board.
THE CHAIRMAN: You will remember that Mr. Hepburn was
Chairman of the Currency Commission of the American Bankers'
Association, and from his discussion, public discussion of the
Aldrich Bill, has been conspicuous in his interest on the subject.
I will now read a letter from Mr. A. J. Hemphill, President of
the Guaranty Trust Company, of New York City.
GUARANTY TRUST COMPANY, NEW YORK.
NEW Your, October IS, 1914.
Dear Mr. Babcock:
I have been hoping that I could arrange my affairs so as to attend
tile meeting of the American Bankers Association at Richmond, Virginia, on October 13th. I find, however, that it will be impossible
,for me to 'oe absent from New York at that time. I greatly regret
my inability to attend.
I should especially like to be present at this meeting so that I
might have an opportunity to express my approval of the Federal
Reserve Act and the beneficial results which I am sure will follow
upon tile inauguration of the system.
In this connection, I desire to say that I feel certain that the Trust
Companies will co-operate with tile various Regional Banks so as to
- make the whole system a complete success, and in this way serve the
interests of the people at large. The broad law recently adopted by
the State of New York will, in my opinion, prevent the Trust Companies organized under the laws of that State becoming members of
the Federal Reserve System until the Federal Reserve Act is amended
along similar liberal lines. I anticipate as the operation of the system
Indicates tile necessary emendations that these will be enacted.
Very truly yours,
A. I. HEMPHILL.
P. S. BABCOCK, Esq., Secretary,
American Bankers Association,
New York, N. Y.

THE CHAIRMAN: I will now read a letter from E. D.
Hulbert,
Vice-President of the Merchants' Loan & Trust Company, of
Chicago, Ill.
MERCHANTS LOAN AND TRUST COMPANY.
CfricAGo, DX., October 10, 1914.
Mr. F. H. Goff, President,
Trust Company Section, Ameilcan Rankers' Ass'n, c/o Jefferson Hotel,
Richmond, Virginia.
My Dear Mr. Goff:
Your telegram of this (late has been received.
The attitude of tile State Banks to the new Federal Reserve system
is manifestly one of "Watchful Waiting," and I do not see how
anyone can criticise them for that attitude. While the framers of the
Act desired to give tile State Banks an opportunity to come Into the
new system without sacrificing their rights under their State Charters,
they apparently gave the Federal Reserve Board power to restrict
the business of State banks entering the system in any way which
in its judgment might seem proper or necessary.
There is no reason to suppose that the Federal Reserve Board has
any desire to interfere materially with the functions now exercised by
State Banks, but, so far as I know, the Board has not yet agreed
on its rolicy in this respect.
I believe when the Federal Reserve Board does take this matter up,
It will recognize the fact that the State Banks of this country are
performing a service to the communities in which they are located,
which is important and necessary to the growth and welfare of the
country, and which service cannot be performed if any attempt is
made to make hard and fast rules for the conduct of their business,
which shall be uniform throughout the United States. In order to
make rules for the conduct of National Banks uniform, the business
of those banks bad to be restricted within such narrow limits that
they have been able to give the communities in which they are operating only a comparatively small part of tile necessary banking facilities. For this reason it has become a common practice of National
Banks, of late years, to affiliate themselves with State institutions,
In order to give their clients complete service.

TRUST COMPANY SECTION.
I cannot believe that the Federal Reserve Board will fail to recognize these facts.
The question most often asked is: "What will be the attitude of
the Federal Reserve Board regarding loans on real estate?" So far
as I know all State Banks have the power to loan money on real
estate, and they would probably look with disfavor upon any attempt
to restrict their operations in this field. It is a fact, however, that,
on the whole, this privilege is used very moderately by the State
Banks. Nearly all the banks operating under the great banking systems of Europe have the power to loan money on real estate. As a
matter of practice, they exercise the newer in a very limited way,
and no harm comes from It.
In my judgment, the limitations on State Banks imposed by the Act
itself are about all that ought to be imposed upon State Banks entering the system, that is—banks entering the system should be required to comply with the same reserve and capital requirements, submit to the same examinations as National Banks, and should also be
required to conform to the provisions of law imposed on the National
Banks respecting the limitation of liability which may be incurred
by any person, firm or corporation, the prohibition against making
purchase of or loans on their own stock and the withdrawal or impairment of capital or the payment of unearned dividends.
Also, State Banks going into the system and their officers and employees should be subject to the penalties of the National Bank Act.
and they shduld be required to make reports of conditions and of the
payment of dividends to the Comptroller. Aside front this I can see
no reason why they should be hampered in the conduct of their business, except in the way of such regulations as any good system would
impose for the proper conduct of the business. Obviously, the taking
out of National Charters under the new Act is entirely impracticable
so far as Trust Companies are concerned.
All Federal Banking Legislation in the past, designated to protect
depositors and facilitate business, has broken down under pressure,
largely because State Banks have not been included in its operation.
Inasmuch as State Banks represent a great deal more than half of the
banking power of the country, it is obvious that not remedial legislation can be ultimately successful that does not include them. When
the Monetary Commission first promulgated its plan for banking reform, it excluded State Banks. The Commission became convinced,
however, early in the debate that the plan would be a failure if
State Banks were not included, or if any attempt was made to force
them to do business on National lines. This recognition of the real
position of State Banks in our financial system was, in my judgment,
the greatest step in banking reform which has been taken in fifty
years. I hope and believe that the Federal Reserve Board will recognize the importance and necessity of getting the State Banks into the
new system, and will, at an early date, define its ettitude to the State
Banks in 'such a way that those doing a commercial business will be
glad to join, thus giving the country an ideal system which can only
be brought about in one way—namely, by State control of the kind
of business which shall be conducted, supplemented by Government
supervision and control in its operations.
Sincerely yours,

E. D. HULBERT.

THE CHAIRMAN: Now, One more letter. This is from Col. F.
H. Pries, President of the Wachovia Bank & Trust Company, of
Winston-Salem, N. C.
WACHOVIA BANK AND TRUST COMPANY.
WINSTON-SALEM, N. C., October 10, 1914.
Mr. F. H. Goff, Jefferson Hotel, Richmond, Va.
Dear Mr. Goff:
In reply to your telegram and the request for my views in regard
to the Federal Reserve Association, beg leave to say that I haven't
the time at my disposal to prepare a paper of any material value or
worthy of presentation at the meeting. In fact the matter has been
one of inquiry and concern on our part ever since the bill passed.
personally, I have thought, and have been prepared to favorably consider joining the Association for two particular reasons. First, because
thought that we were now nearing a National System based
upon proper principles that should include all banks and financial
Institutions, that would grow In strength with the great country that
the Association will be called upon to serve. I am quite sure that
this will be so under the guidance of a wise and liberal Board, such
as seems to have been selected. The other consideration is especially
applicable to a bank of deposit, which we are to a certain extent.
There are advantages accruing to membership in the matter of discount and emergency currency that is a direct and positive advantage at times, and a sentimental attendant advantage that seems to
add strength because direct and immediate relief Iles closer to those
Institutions than those that do not. The Trust Companies doing
only a fiduciary business will find little advantage in joining. I
think, therefore, that it will have a tendency to differentiate if not
ultimately separate Trust Companies according to the character of
the business that occupies their funds and attentions. The Clearing
House feature might also be of some value to us. Of course the
disadvantages of the arbitrary rulings by the Board without a fore
knowledge of how our business ,is conducted, or the relation that
might exist between the various departments might be annoying to
say the least, particularly as I believe they will tend to inaugurate
a system and introduce a rigid enforcement of the rules that will
tend to standardize all in the Reserve System, which might, and
doubtless would, apply more closely to other sections of the country
than our own, where liberal ideas and practices prevail. For these
reasons it has been a debatable question, and our Executive Officers
are not as fully convinced as to the advantages as I am, and we have
simply done what most institutions have done, deferred our action
until the Board has organized and its rulings promulgated and we
could see something of its practical working.
I am giving you this for what it is worth and presume you can
see how my mind is running on the subject. I would like very much
to hear the discussion, which I know will be of vital interest to all
present, and shall read the account of the proceedings very attentively. I hope, however, to have the privilege of discussing it with

153

you afterward in my own home, and shall look forward to it with
the greatest pleasure. Please do not disappoint me.
Very cordially yours,
F. II. FRIES,
President.

THE CHAIRMAN: Gentlemen, we are honored by having the
President of the parent association, the American Bankers'
Association, Mr. Reynolds, here. With your permission I would
like to have you listen to his address.
REMARKS OF ARTHUR REYNOLDS.
Ma. REYNOLDS: Gentleman of the Convention: I appreciate
very much the honor of being called upon at this time. I did
not enter the hall with any thought that I would be called upon
to address you, and have not any particular mesSage to convey .
at this time. I have been very much interested in the discussion that has taken place here, particularly the paper prepared
by Mr. Willis, a very learned gentleman, who has had a great
deal to do with the preparation of the present law, and also
particularly in the statements that were made by Mr. Hulbert,
who is recognized as a very prominent banking man in the country, representing particularly the views of you gentlemen who
are interested in these two sections. We all recognize—I might
say, however, that the President of the American Bankers' Association, through his office, is brought before the membership in
a great many different ways, both in the Convention and as
Chairman of the various committees, and modesty would prevent my occupying any particular amount of your time on this
occasion. I beg, however, to say that I think the bankers of
the country feel that the Federal Reserve Board that has been
appointed is composed of gentlemen of a high order who instil
confidence in the new system. Very much undoubtedly will depend upon the administration of the new system. The National
Banks have already indicated their desire to co-operate to the
fullest extent, and, of course, we all realize that if this system
is to bring about the benefits which it is expected, that it is desirable to have the co-operation of the entire banking fraternity
of the country, particularly the State—those State institutions
—and we feel that if this system fails to accomplish the coordination of the banking system—of the different system of
banks throughout the country—that it will not have accomplished what has been expected of it; and it is. to be hoped
that there will be such reasonable regulations provided as will
enable the State institutions to come in under the law and thereby unify the entire banking business of the country.
I anticipate that, perhaps, the administration of the law will
have a great deal to do with the question of State Banks
coming into the system at this time; we are all at this time
having some practical illustrations of the administration of
some of our laws by officials in a way to give the banks of the
country a very great deal of concern, and I anticipate that they
will await action until it can be determined what the regulations are going to be in regard to the new system.
I feel that the bankers of the country are to be congratulated
that we have, after many years of discussion, secured a new
law. It is not all that the bankers expected or believed that
they should have, and yet they feel that it is probably as good a
law as could be accomplished under present-day conditions; and
I believe that the banking fraternity generally are very well
satisfied with the present law, and I anticipate that, as we go
along, we will find that the system will work out to the very
great benefit of the country.
There is one important feature of the system that has impressed me as being probably one to which too great attention
has been given, particularly that of providing for rediscounts.
Every line of the new bill and every defense made of the measure has been one inviting rediscounts. I believe that the new
system should be such a one as would encourage reasonable rediscount by banks in time of need, but I think it would be a
very great mistake if we develop a system here particularly
with that one feature, to encourage banks to always rediscount
freely and for profit.
My judgment is that it was a very wise provision, providing
that the new system should return a small percentage of income
to banks, because I do not believe that the question of profit
to the banks is a vital one to the system; nor do I believe that
banks should be able to rediscount with those banks, with those
Federal Reserve Banks to great profit to themselves, because it
would encourage continual rediscounting which would absorb
the great reserve fund which has been deposited for benefit in
time of need, and when the actual hour came for use of the
fund it would be found that the fund was not there to be had.
We find that in a foreign system, particularly with the Bank
of England, they do not rediscount practically at all for banks.
The opportunity is given to rediscount. It is provided that
banks may rediscount, and yet a bank in England which would
rediscount with the Central Bank, as has been stated by one of
the eminent managers of one of the foreign banks before the
Monetary Commission, his bank would be regarded with suspicion if they did rediscount, because the banks are expected
to keep themselves in condition to take care of their own affairs
all the time by carrying such liquid assets as would take care
of their immediate and unusual requirements; so that in England they have developed there a great system, providing
a re-

BANKERS' CONVENTION.

154

serve which is at all times an object lesson to the world that
they are prepared to meet every obligation, and with ample
means provided whereby in an extreme emergency they can rediscount; and yet, they very seldom, if ever, rediscount with
that bank.
In Germany and in France, if I remember right, about 70
per cent, of the loans at the time that the Monetary Commission
made their investigation in Europe, were made by the Bank of
France to member banks and, if I remember, the German Bank,
the Deutsche Bank, had about $140,000,000 of loans and about
$250,000,000 rediscount to banks; so that in those two countries, in opposition to the plan in England, those two countries
do rediscount rather plentifully and at all times take care of
the reasonable requirements of their banks; but they are careful to have in their vaults at all times a large amount of foreign
bills which they can liquidate to meet every requirement.
There is another feature in connection with the foreign system which must be borne in mind—namely, that the English
Bank rate, the French Bank rate and the German Bank rate,
are always slightly in advance of the commercial loan rate of
those countries. I do not mean by that the rate in the small
country towns, a rate established for what would be known
here as commercial paper, is always slightly in advance, so
that the bank which rediscounts with those, banks does so by
sacrificing some of their own profit in order to take care of the
immediate situation, but the great saving clause in that operation is, that it keeps the banks at all times in a position to meet
any reasonable requirement, because banks do not rediscount,
whether they are compelled to do so either without profit or
loss, except on very rare occasions; and, consequently, this great
gold reserve is kept in constant use as an object lesson to the
world, and also as an opportunity to enable the banks to take
care of themselves under these conditions. So that I say, if
any of you gentlemen having thought while all this discussion
has been going on for years that the real object of this law
after all was to enable banks to come into the system through
which they could rediscount at great profit and expand their
loans and thereby expand the business of the country and thereby as many of our legislators hoped and believed that it will
reduce the rates of interest, I think you should disabuse your
minds at once of that idea, because if this system is carried
along on that line you may be sure it will never meet with the
success which is hoped for it.
Now, gentlemen, I have not undertaken to discuss this question at this time; I did not come here for that purpose. I have
some ideas to express in what I may say to you to-morrow.
I thank you at this time. (Applause.)
THE CHAIRMAN: Gentlemen, the fun is all to come. Mr.
Sartori and myself beg to suggest the following rules to govern a free-banded discussion, the time of each speaker to be
limited to three minutes. Under no circumstances, even with
the consent of the Convention, is the time to be extended or to
occupy a further period of, three minutes. There are ten or a
dozen gentlemen who have given some study to this question, and
it is our desire to call upon them for brief utterances. Following that remarks will be in order.
I am asked to read the following notices:
Meeting of the Savings Bank Section will be held in this room at
2.30 o'clock. The speaker will be Mr. A. H. Harris, on the subject
of "Savings Bank Securities in the Light of Recent Events "; Mr.
E. C. McDougal, President of the Bank of Buffalo, of Buffalo, New
York, on the subject of "Recent Amendments to Savings Bank Law
of New York and Reasons for, such Amendments."
The Savings Bank Section will be held this afternoon at 2.30 in the
Salon of the Jefferson Hotel, which they tell me is in the rear of
the dining room, up a little flight of stairs. All delegates may obtain
their home papers, newspapers and telegrams, addressed care of the
Convention, at the Information Bureau.
I am also asked to announce that there is a large quantity of mall
at the Information Bureau, at the Jefferson Hotel, for Members of
the Association and their guests.
Also that the General Convention will meet in this room to-morrow
morning at 9.30 o'clock, for general association business, and an address will be delivered promptly at 12 o'clock by the Hon. Martin W.
Littleton.
I now ask, gentlemen, to introduce to you another guest who
has honored us by his presence. The Hon. Richard L. Austin,
Governor of the Third District Regional Bank, Philadelphia
District.
REMARKS OF RICHARD L. AUSTIN.
Mn. AUSTIN: Gentlemen, when I came on this platform I was
told I was not to be presented to the Convention, and the Judge
has made a mistake in presenting me as Governor of the Federal
Reserve Bank, of Philadelphia. I have had the honor of being
appointed Chairman of the Board of Directors and, of course,
Federal Reserve Agent. I do not think it is hardly fair to me
or yourselves to introduce me into these proceedings. I am
frank to say that I came down here to learn something. I am
here, as I say, in the capacity of an operating official and I am
looking for information, and I find it is pretty hard to get.
Washington is doing a great deal of work in making investigations and preparing system accounts' to determine just what
functions the Reserve Banks shall perform when they are

opened, but they have not come to any positive conclusions as
yet; but when they do, I think we shall be satisfied with what
they have provided for. I think we are fortunate in having
read to us to-day the very thoughtful paper by Mr. Willis. If
we give careful consideration to what he has said, we will get
a good idea of the system and will arrive at the proper conclusion as to our duty to it. He stated about the relation of
the Trust Companies and State Banks. I have not thought
very much about it, but it seems to me that the time may come
when the facilities that the Federal Reserve Banks offer for
rediscount and for the collection of checks will be considered
a valuable asset,'and the public may prefer to do business
with institutions which are members of the Federal Reserve
system, and which has access to those facilities. I do not
think the Federal Reserve is starting out as a competitor with
the State Banks or the Trust Companies. I think I am safe in
saying that it was not started primarily as a profit making
enterprise. We hope to receive the ardent support of the bank
officers in the State in the introduction of the system and
help along our efforts to make it a success.
THE CHAIRMAN: I am now going to call on a member, a wellknown member of the banking fraternity, Mr. Sol. Wexler,
President of the Whitney-Central National Bank of New Orleans, La.
REMARKS OF SOL. WEXLER.
MR. WEXLER : I was just about to leave the room, fearing I
might be called on to say something on this subject, and it is
with a great deal of diffidence that I respond to the call of
your Chairman; and it is very difficult to make an expression
on this subject without going into some of the criticisms and
the defects under which we shall labor under the new Act,
until it has probably been amended by Congress. However, as
the time devoted is only three minutes, I shall endeavor to
stick very closely to that part of the subject which is uppermost in your minds at this time, and that is of the State banks
joining the system.
It is my opinion that, in order to make it advisable for
State banks to join, certain very important amendments to
the present Act will have to be put in force, and I believe that
a commission or a committee should be appointed by the American Bankers' Association at this meeting, composed of five members representing the Trust Companies, five members representing the National Banks, and five members representing the
State Banks, who might confer with the authorities at Washington with regard to amendments that should be made to the
Act in order to make it workable for State institutions. I believe it is necessary that every banker who works daily in his
own institution and who knows the necessities of his case
ought to be conferred with concerning these necessities. I believe it is practically impossible for authorities, appointed for
one reason or another to the offices which they hold, many of
them very able men undoubtedly, to thoroughly understand the
intricacies of the various problems with which bankers have to
contend, and therefore I believe a commission of this kind will
not only be a very great advantage to the bankers of the United
States, but also to those authorities who are charged with the
duties of making our laws.
It was undoubtedly the dream and hope of every patriotic
and altruistic banker during the many years of discussion of
currency and banking reform that we would one day have a
centralized reserve; one day a law under which all the banks
of all characters in the United States could come in under;
one day a system under which the present method of extending
open credit would be substituted for acceptances such as is
carried on in Europe. These were the three things we had all
hoped for. This Act probably is the best that could have been
.hoped for at this time. Perhaps that is the case. I am not
prepared to make that statement positively. However, we have
this Act and I believe it will be a long step in the direction of
reform under the many abuses we have worked, and I believe
the American people can be relied upon to so amend it from
time to time as to make it useful in the upbuilding of our
country and in the establishment of one complete unit system
of banks; and I further hope that the day may come when the
reserves of the whole country will be centralized in one institution instead of twelve.
I thank you, gentlemen.
THE CHAIRMAN: I now take pleasure in introducing Mr. John
W. Platten, President of the United States Mortgage & Trust
Company.
REMARKS OF' JOHN W. PLATTEN.
MR. PLATTEN: Mr. Chairman and Gentlemen. I do not know
that I can add anything of importance to what has already been
said on the question of this Act as it affects various State institutions. I do know that there is a certain obligation, I think,
resting upon State institutions to give this matter very serious
consideration, so far as Trust Companies are concerned. I beg
to state that our company recently has compiled statistics of
Trust Companies in the United States in the preparation of
their thirteenth edition, and these figures are as of June 30,
1914. It indicates that the total resources of Trust Companies
of the United States and the companies from which we have

TRUST COMPANY SECTION.
reports totals nearly $6,000,000,000. That is $450,000,000
greater than in 1913, and a little over 50 per cent. of the total
resources of the National Banks of the country, as reported
to the Comptroller on June 30, 1913. Therefore, I think the
position of the Trust Companies as a unit in the financial system of the country is a very important one and must be reckoned
with. I have heard it said that the Trust Companies as a
whole ultimately would be forced to join the system. I do not
believe that such action is contemplated. Undoubtedly the
Federal Reserve Board, even after completion of the organization of the system, will think that remedial legislation will be
necessary. I only have to suggest as a means to the end that
possibly for the consideration of the Act, that out of each Section a commission or committee be appointed, and that out of
those three committees, if there are three, a sub-committee be
appointed to report and keep in continual conference with the
Federal Reserve Board, to the end that this remedial legislation is adopted, or for Congress to take such action as may be
necessary; that such action be taken with respect to Trust Companies and State Banks and Savings Banks. I have no doubt
if that commission approached the Federal Reserve Board in
proper spirit that great good could be accomplished.
THE CHAIRMAN: I now introduce Mr. Oliver C. Fuller, President of the Wisconsin Trust Company.
REMARKS OF OLIVER C. FULLER.
MR. FULLER: Mr. Chairman, I think at this time anything I
can say would not throw any light on this situation beyond that
which has been given us so clearly by Mr. Willis, and a personal
opinion of the Act by our President of the Association, Mr.
Reynolds, except to say that I was very much interested in
noting the divergence of opinion between those two gentlemen
as to what was the purpose and what would be the working
out of this act, one of them expressing the opinion that banks
which do not expect to take a very active part in rediscounting
and doing business with It would almost incite him to express
the opinion would not be desired as a member, whereas Mr.
Reynolds thinks rediscounting would be a small part. Therefore, there is such divergence of opinion as to how the system
would work out that I hesitate following those who have given
it so very much thought and have had so much to do with framing it, in expressing an opinion as to the present or future. I do
desire to say that I approve of the suggestion made by Mr.
Wexler, of New Orleans, and by Mr. Platten, of the appointment
of committees representing the various branches of banking,
represented in this Association, who might consider carefully,
and perhaps influence somewhat the method of the rules and
regulations under which the State institutions may enter the
system and profit thereby and benefit thereby. That is all I
have to say. (Applause.)
THE CHAIRMAN: Mr. Wexler, do you offer as a motion the
appointment of a committee?
COMMITTEE TO SUGGEST AMENDMENTS TO FEDERAL RESERVE
LAW TO MAKE IT ATTRACTIVE FOR STATE INSTITUTIONS.
Mn. WEXLER: Yes, I do, as a committee of fifteen, to be composed of five representing the National Banks, five representing
the Trust Companies, and five representing the Savings Banks.
I have included National Banks for the reason that in the suggestions of any legislation it is necessary that they not conflict
with the interest of National Banks; otherwise, opposition would
be created on the part of National Banks. In other wbrds, there
must be complete harmony in whatever legislation or amendments to this Act may be suggested. Therefore, I think it
advisable to have all the branches of banking represented on
the commission, and I offer that amendment.
THE CHAIRMAN: And if you please, what suggestion have you
as to how the committees should be appointed by the different
Sections?
Mn. WEXLER: Yes, except there is no National Bank Section.
The National Banks may be appointed by the President of the
Association, and those representing the Trust Companies and
Savings Banks by the various Sections—by the two Sections,
the Trust Company and the Savings Bank.
MR. PLATTEN : Don't you think, Mr. Wexler, it would be much
better for the various Sections to agree upon remedial legislation or the amendment to the Act and thereafter confer with
the National Banks? Is it not true that the Federal Reserve
Board is already well acquainted with the features as far as
National Banks are concerned? Therefore, it seems to me that
a committee or commission from each Section would be in a
position to signify their conclusions reached before they conferred with the Federal Board.
THE CHAIRMAN: Your suggestion is that a committee of five
from the Trust Companies, a committee of five from the Savings Banks, be appointed to confer with the Federal Board, and
I suppose with committees of Congress?
MR. VEST (of Virginia): Would it not be more effective and
would it not come with better force from the General Convention of the American Bankers' Association? I am thoroughly
In sympathy with the appointment of this committee, but I
think action could be deferred until to-morrow and this motion
then be made before the General Convention rather than just

155

before one of the Sections; and I offer that as a suggestion that
we postpone this appointment of a committee.
THE CHAIRMAN: I might say that this is the last opportunity
after concluding with the Savings Bank and Trust Company Sections. Their meetings are to conclude to-day.
MR. WEXLER: I am of the opinion that the influence of such
a committee would be considerably greater if it came from the
whole Association than to have it come from one or two Sections; and talking on the point made by Mr. Platten, his remark
would rather indicate that the Act requires amendment in so
far as National Banks are concerned, I do not concur in that
view. Therefore, as we do not want two committees or commissions, one on National Banks and the other on Trust Companies and Savings Banks, and as National Banks and the interest of Trust Companies are not diametrically opposed, from
my standpoint, I think it would be desirable if the committee
were composed of three classes of banks; I think it would have
greater weight; I think the amendments, perhaps, would meet
with uniform satisfaction; I think it would lead to less discussion afterwards, and possibly to less opposition. It is much
better to meet upon a common ground at this time rather than
to oppose anything that may be suggested by the Trust Company Section and the Savings Bank Section. In other words,
uniformity is what we want in order to accomplish legislation,
and it is my opinion that the personnel of the committee should
be as I have originally indicated.
THE CHAIRMAN: As we have no second to your motion, do
you desire to frame your motion, that the committee be appointed by the General Association?
MR. WEXLER: My motion would be that a committee of fifteen be appointed by the General Association and that that
committee be composed of five representing the National Banks,
five representing the Trust Companies, and five representing the
Savings Banks.
THE CHAIRMAN: And that the adoption of the motion which
you make be an expression of our desire to the General Association that such action be taken?
MR. WEXLER: Yes, sir.
MR. VEST: Do you distinguish between commercial State
Banks? It seems to me that the commercial State Banks are
more interested than any other branch of the banking business.
MR. WEXLER: The commercial State Bank should be represented undoubtedly, and you might make it four classes then.
THE CHAIRMAN: Pretty large committee, Mr. Wexler.
MR. WEXLER: Yes; but you could reduce it to three—make it
a committee of three each, and that would make it twelve.
MR. PLATTEN: I would like to correct Mr. Wexler's idea as
to what I stated, that any legislation was necessary on the part
of National Banks. I think the Federal Reserve would appreciate that remedial legislation is necessary, even though they
did not join, but I can see no particular objection.
THE CHAIRMAN: Do you second Mr. Wexler's motion?
MR. PLATTEN : Yes.
THE CHAIRMAN: Each representing the four classes, Trust
Companies, Savings Banks, State and National?
MR. JACKSON: Would it not be better for this Trust Company Section to appoint, or for the Chair to appoint, its own
representatives, and then go to the General Convention with a
statement that it was appointed, rather than have the benefit
of the Trust Companies motion made by the General Convention, at which meeting there may not be as many as are here
now? It amounts to the same thing, to me.
MR. WEXLER: I think your views can be met by coupling
with your recommendation the names of the three from
the Trust Company Section and three from the Savings Bank
Section, by coupling with the recommendation those names,
and it would then be left with the general body to select representatives of States who have no organization and of National
Banks.
THE CHAIRMAN: The question is this: that the recommendation go to the General Convention at its meeting, perhaps tomorrow, that a committee of three from the Trust Company
Section be nominated and named by the Section at its meeting
this afternoon; that a committee of three from the Savings
Bank Section be similarly named by that body at its meeting
this afternoon, to serve the three members to be appointed by
the General Convention in the manner designated by it, representing the State institutions, and three representatives of the
National Banks to be similarly appointed.
MR. VEST: It seems to be that we are anticipating the fact
that the General Convention to-morrow is going to appoint this
committee. All we can do is to recommend that this committee be appointed, and if they do, they can name certain
men that can be recommended for this committee. I think you
ought to be careful not to commit the General Association so
that they must appoint this committee, and thereby lose the
force that the action of the General Convention would have.
My idea is to avoid the fact that a Section has acted on this
important matter.
THE CHAIRMAN: Are you ready for the question?
MR. FoyE: I would like to understand just what the duties
are to be of those representatives.
MR. WEXLER: My understanding of the duties of the commit.

BANKERS' CONVENTION.

156

tee is this: that we all appreciate the desirability of having the
Trust Companies and Savings Banks join the Federal Reserve
system. If we agree in that, then the duty of this committee
or, this commission is to recommend to the authorities at Washington the adoption of certain amendments to it which will
make it desirable for such institutions to join.
THE CHAIRMAN: Would you not go somewhat further and give
to them, at least clothe them with power, if the Federal Reserve Board would permit of a conference on the subject of regulations and rules, by promulgating them?
Ma. WExtmt: And we might add to that, to be adopted by
this committee on reviewing the rules and regulations now under
consideration by this Federal Reserve Board, in order to see to
what extent those rules are favorable.
, THE CHAIRMAN: Are you ready for the question? As many
as are in favor, please signify by saying Aye; opposed, No.
Mr. Sartori, will you be kind enough to see that a committee of
three is appointed?
COL. FARNSWORTH : I would like to call your attention to one
point which does not seem to be generally understood, and that
is, under the new Constitution the appointment of committees
must come under that bead on the last day of the Convention—
it must come under the order of committees and committeemen.
We would be very glad if that is submitted, to bring it up at
the time.
Ma. JACKSON : Mr. Chairman, it seems to me now that having
gone on record as approving the appointment of this commission to look into the regulations of the law and its provisions
for Trust Companies and Savings Banks, I am very fortunate in
the fact that the company with which I am connected is purely
in a class of those companies which are advised to keep out,
for the moment, not to join the Federal Reserve, because we
do not do a commercial bank business; and that has been my
idea for the moment, that it was not wise to step in; and I
think it has given me much encouragement in that belief and
to hear the very frank statement made by Mr. Willis, to have
one member of the Government to tell us, absolutely without
restriction, what he thinks would be the disadvantages, perhaps,
to go in the Reserve system; then to have another member of
the Government, as chairman of the Board of Federal Reserve
Banks, say that Washington is not yet altogether prepared in
its forms and mechanism for conducting this business, makes
it to me the more patent that it is not right at present for a
Trust Company not doing a commercial business at any rate,
patriotic as it may be.
THE CHAIRMAN: We will now hear from Mr. W. E. Knox,
Comptroller of Bowery Savings Bank, of New York.
REMARKS OF W. E. KNOX.
Ma. KNOX: Mr. Chairman and Gentlemen, I won't take more
than three minutes; I hardly think I will take three minutes.
As most of us belong to these institutions that Mr. Willis has
.
ex-communicated from the Federal Reserve system, in his opinion, we stand in that class apart that is able to judge serenely
of the system without having any personal interest in it particularly. We are very fortunate in that respect. I do not entirely
agree with him that we are so entirely disinterested as he appears to think, because in the Trust Companies and Savings
Bank we have a large aggregation of the banking power of the
United States, and no matter how the system works, whether
it is a success or not a success, it is inconceivable that we cannot be and are not interested, if not directly, indirectly. Just
at the present we are, in the East especially and in the big
cities more especially, we feel very strong a good many of us,
that if there were some way in which, in a period like this in
the future, if it were necessary we could avail ourselves directly
of the aid of the Federal Reserve system, it would be a mighty
good thing. As at is now under the present law, a Savings
Bank in the State of New York, or a mutual Savings Bank in
any State, no matter how pressed, could get no help from the
Federal Reserve system without going through another party, a
member of the Federal Reserve. Our interests are certainly big
enough, it seems to me; certainly our responsibilities are big
enough, to make it very well worth while, through such a committee as Mr. Wexler has suggested, to inquire into the merits
of the case and see if there is not some way in which we can
come into direct affiliation with the Reserve system and make
use of It when the time comes.
THE CHAIRMAN: Mr. R. C. Stephenson, Vice-President of the
Saint Joseph County Savings Bank, South Bend, Ind.
REMARKS OF R. C. STEPHENSON.
Mr. President and Gentlemen of the Convention, in speaking
of the Federal Reserve bill I must address my remarks to the
condition in which the bill is to-day, not what might happen to
the bill if it is properly amended, but as it now is upon the
statute books of the United States.
As it is to-day, I think that the State Banks, the Trust Companies and the Savings Banks will be indirectly benefited by the
bill without having any of the burdens that are taken by the
National Banks in connection with becoming members of the
Reserve Bank. But I do heartily agree with the remarks that
have been made by Mr. Wexler and others, that there should

be amendments to the Federal Reserve bill that would enable
the banks, the National Banks, the Trust Companies, the State
Banks generally and the Savings Banks to be invited to come
in. As the bill stands to-day, it simply says to the National
Banks: "You must come in or get in." There was no invitation in the bill for a State Bank or a Trust Company to become members of the Federal Reserve banks.
The only suggestion that I heard the speaker make to-day,
Mr. Willis, and I must say that his explanation of the subject
was certainly very explicit and frank, but the only explanation
that he makes is that the State Banks and the Trust Companies would be advantaged by the clearing of the domestic
exchange. And it seems to me that it would be a very easy
matter for the Trust Companies and the Savings Banks and
State Banks to arrange for a satisfactory clearing of their
domestic exchange without becoming members of the Federal
Bank, as it is now constituted on the statute books.
There is another matter that the State Banks and Trust
Companies have viewed with amazement during the recent few
weeks, and that is the strictures that have been made on the
National Banks by one of the officials in Washington, and I
think that every officer of a Trust Company and a State Bank
and a Savings Bank has had cause to be thankful every time
he opened his bank during the past three weeks that he was not
a member of the Federal Reserve Banks, so that he would be
under that official. Attacks have been made against National
Banks, the officers of National Banks who are here, and I
want them to know that all of the officers of the Trust Companies, the State and Savings Banks extend to them their sympathy; and we have felt very sorry for the position in which
they have been placed. It seems to me that if there were any
members of the national organization who had done anything
for which they should be called upon to make explanation,
it should have been by a private communication instead of
through the public prints.
REMARKS OF N. F. HAWLEY.
Hawley,
THE CHAIRMAN : I make the call upon Mr. N. F.
MinneTreasurer of the Farmers & Mechanics Savings Bank, of
apolis.
of
MR. HAWLEY: Mr. Chairman and Gentlemen. I am one
those who are so detached from any personal interest in this
discussion that I can speak with freedom. I must admit that
heretofore I had felt a decided interest—in fact, I must admit
that I still feel a decided interest in the legislation and in the
operation of this Federal Act. I believe, and have always
believed, that the banks of the country do a public service;
that it is a profession. I believe that we all did it—I did not
believe that only part of us did it; and I have had the opinion.
I have still the expectation that the time will come when the
United Stites will recognize the fact that we all have service
to perform, and that we will all be included in the assistance
that is to be given to us and in the aid of national administration.
I think we should have confidence in the future. We should
not be pessimistic. I believe we should have faith in the administration of this bill; and the best way for us to give the
best service, the best way for us to get the best out of it is
to be in that mood that we can assist, in that mood in which
we can be assisted. I have felt that there were three or four
main reasons why State Banks, whether they be commercial
Banks or 'trust Companies, or Savings Banks, if they were permitted to join; reasons why they do not join. They have been
suggested in one way or another this morning. It is proper
that we should be pardoned and wait for the experience under
this act. It is one good reason why we should. It is a great
strain upon the banking system, upon the operation of financial
matters if all capital should be at once subjected to this. Isn't
it prudent that we should wait to see how it operates? and isn't
it proper that we should get from that experience wisdom by
which we should go forward? I think it is a proper reason
why we should wait. It is also a perfectly proper reason for
us to consider whether we can retain the advantages which we
now have. It is certainly an important reason. The State
institutions have many advantages. They serve their local
communities; they serve many of their local communities in
ways that National Banks do not, or cannot, under the present
reserve act. If they cannot perform their duties, they ought
to wait until the act is so framed that they can.
I think there is another reason we should wait, and that is
until we know whether this Federal Reserve act will be subject
to political control. The criticism has been made—it has not
been made in hostility altogether, it has been made in friendliness—as to whether the operation of this Federal Reserve Act
will be subject to political control. The present administration
is going on record, it is making its record. We must look to
that record. What else can we look to, if we decide what we
shall do in coming under the administration of this act? I,
therefore, say that we are to ask them, in view of their friendliness, of their desire to have this act successful, in view of their
desire that the country shall be administrated, that they restrain, be careful, be wise in their political control of this
great instrument of business.

TRUST COMPANY SECTION.
REMARKS OF THORNTON W. COOKE.
Tnn CHAIRMAN: Mr. Thornton W. Cooke, Vice President of
of the Fidelity Trust Company, of Kansas City.
MR. COOKE: Mr. President and gentlemen, I shall use my
three minutes to cover, if I can, just one point. Dr. Willis in
his admirable paper asked us why the State Banks and Trust
Companies should not come ,into the system. Then he very
cogently stated one reason that will keep them out: the possibility of a narrow limitation on investments and on real estate
loans.
The real estate banks in the Central West—I represent some
of them as well as the Trust Company and the numerous State
banks out there—are perhaps the most valuable features of
American banking, make many real estate loans. I mean typical banks that will carry $100,000.00 or $35,000.00 on real
estate loans. The alternate of such banks would be to export
capital out of those communities to purchase the commercial
paper of industrial organizations and allow the farmers of those
communities to import capital from outside to finance their
operations. It seems unnecessary and undesirable to me that
such men should be so driven to exchange outside capital for
inside capital when they can perfectly well use their own capital and use it at home.
The same considerations apply to many Trust Companies.
Many Trust Companies have investment departments which
make a specialty of handling real estate loans. They carry at
times more than 25 per cent, of their capital in such investments, 25 per cent, being the limitation of the Federal Reserve
banks upon National Banks.
If I follow Dr. Willis correctly, it is his expectation that the
Federal Reserve Banks limit State Banks to the same 25 per
cent, that was laid down in the act for National Banks. A
valuable function both of Trust Companies ard State Banks
has never been interfered with. The desirability of such a
function is the very reason why there are so many State Banks
in the Central West now that otherwise might be National.
Where the need of such investments is not felt, the tendency
is strong for the banks to become National if they have adequate capital. They think the word National is valuable out
there.
/ wish therefore to suggest to the committee that is to be
appointed that earnest thought be given to the possibility of
framing some regulation of real estate loans which would be
acceptable to the Federal Reserve Board, and permit such Trust
companies and such State Banks as would otherwise like to
come into the system, to come in, notwithstanding their real
estate loan investments may at times exceed 25 per cent, of
their capital.
Mr. Hulbert, in his most interesting letter suggested—I
feel that we have heard that suggested more than once—that
such regulations might be laid down as would destroy the flexibility of American banking, for American banking has been
flexible. Not, it is true, in the provision for currency issues,
hut for its individuality and independence. Our numerous State
banks, not guided perhaps, not having the wide experience
which a city bank has obtained through a knowledge of the
entire regions, have made losses, but they have also made loans
that would have been refused had they been subject to the narrow rules as laid down from some head office.
Now, I trust and I think that Mr. Hurlbert's fear is not
warranted. I do not believe that upon full consideration of
the question we shall be subjected to narrow rules. I believe
and trust that the Federal Reserve Board will lay down workable rules and regulations that will not interfere with individuality and independence in American Banking, but while
giving us many of the advantages of a good system, will preserve that individuality, that flexibility which has been the
most useful feature of our banking system.
Tun CHAIRMAN: Gentlemen, I am going to call upon one
other gentleman, and that is the father of the Trust Company
Section, Mr. Breckinridge Jones, President of the Mississippi
Valley Trust of St. Louis.
REMARKS OF BRECKINRIDGE JONES.
Mn. JONES Mr. Chairman and gentlemen, I would not respond to my feeling if I did not acknowledge the compliment
the chairman gave me when he heralded me as the father of
the Trust Company Section. It has been a very great and distinct pride of my life that I was associated with a number of
other prominent gentlemen who were in the Trust Company
business at that time, in forming this section, and throughout
its history I shall watch its proceedings, not only with interest,
but with affection.
Now, as to this question that is here, I speak not from a
disinterested point, but on the contrary. I have been studying
this and thinking about it. I have watched the progress of
the legislation. I had thought, when Senator Aldrich, yielded
the proposition and put State Banks and Trust Companies into
his bill, then when it was so fully recognized in the act which
has been passed, that it meant that State Banks and Trust
Companies as they were with the powers which they had in
their respective States, should be eligible to membership in
this Reserve System. And I had no idea when the law pro-

157

Posed there, simply that the Reserve Board could make regulations, that it was going into the question of fixing proportions of loans and to do other than to see that the State Bank
or Trust Company was complying with the law of its own existence and was a safe institution for the people to do business with, and that it would be a safe member of the Association. I don't think it was intended by the Congressmen who
voted for that bill, and I am sure it was not by the representatives of State Banks and Trust Companies that advocated
the passage of that bill, that we were going to have the Reserve Board legislate as to the exercise of our charter powers.
We understood that Trust Companies and State Banks as incorporated in the various States, were made eligible for members,
and if the State wants to change our powers all right, but I
don't think it is up to the Federal Reserve Board, and I do not
believe they will attempt to exercise that power. They can
make regulations. If they find a certain thing is distinctly
inconsistent with the obligations they may have—there may be
some extreme case, for instance it has been pointed out, they
say here is a Trust Company that does nothing but guarantee
titles, or here is a Trust Company in name that is doing fidelity
insurance business as its main business. It might be well,
they might say to a company of that kind, that you have not
any banking business. But I don't think that the regulations
that are to be made out by the Reserve Board should, for instance, say to a Trust Company in Missouri, "You shall not act
as executor or administrator, or that you shall not lend money
on real estate, or that you shall have only 50 per cent, of your
loans," or anything else. What we shall do is determined by
the law of our existence and the law of our State, and as long
as we abide by the law and are safe institutions for the people
of our respective States, under this bill we are eligible for membership in the Federal Reserve Board.
There are certain reasons that have influenced my own judgment as regards this. In the first place, the law of my State, as
construed by many, said that the banks had no power to
acquire stock in the Federal Reserve. The Attorney-General
has ruled otherwise, but at the same time there was a question
about that, and in some States there was an absolute prohibition. Until the laws can be amended in certain States so that
State Banks can own stock in the Federal Reserve, of course,
there is a reason why they should stay out. Some States will
have the laws amended so as to cover the question of acceptances. So that when they do come into the Federal Reserve
Association they will be in a fair position to begin the business
that the National Banks are doing, and to live in competition
with them.
That there will be distinct prestige in being a member of the
Association, I have no doubt. I earnestly hope that the situation may come around where I can advise the institution with
which I am associated to become a member. I want the advantages from it, I want to have the facilities of collections; I
want to have the discount privileges, and I think there is some
difficulty that is going to arise in this matter, and I simply
speak of a Trust Company as a single kind of institution. Their
powers are very different. Mr. Jackson, for instance, his company's power or by-laws prohibit the use or handling of name
paper. A Trust Company that is not allowed to receive deposits
is very different from what you may call a Trust Company or
Trust Bank in Illinois. The Illinois Trust and Savings Bank,
they are a bank and Trust Company. It is different in the different States. And the word of warning that I wish to have
before the Trust Company Section is that when it comes to
making a suggestion and taking positive action here we be very
careful to not make general regulations which may be viewed
from the standpoint of those gentlemen who are in States
where Trust Companies are not the same things as they are
somewhere else. A Trust Company in California, in New York
now, where it has been given full banking powers, is a very
different kind of an institution from what it is in other States.
Let us not have a committee that will be appointed and
in
making recommendations let it be viewed that Trust
Companies
must be all of one class, and that what will be good for
Trust
Companies of this class will be good for a Trust Company
of
that class. There must be flexibility.
I have no sympathy that all banks of this country
should
be under one system. I think the free banking system
under
which every community could get together and organize its own
bank has been one of the fundamental reasons for the marvelous
growth of the United States.
The only reasons for a National Bank that heretofore existed are practically wiped away by this bill. They are no
longer banks of issue. Going over for a moment old questions
in the early history of this country, they did not think we
had
a right to a National Bank; and the only reason for it
was
to handle interstate commerce and things of that kind. It
never
was intended that they should handle real estate loans;
and
now since they have taken away the issue there is
no reason
for being a National Bank more than for being a
State Bank;
and if a State Bank can come in, so long as it is
safe, it should
be free to come.
The thing I am afraid of is that, with so many
bank examiners examining 19 Commercial Banks to where
they examine

BANKERS' CONVENTION.

158

one Trust Company, they will want to put a National Bank
yardstick on us. They cannot measure it that way. If an examiner comes in he does not understand it, and he is liable to
make a great many arbitrary conclusions. And the one thing
I am afraid of more than anything else is this arbitrary control that comes from a Federal control, that looks back to
Washington for appointment. In our own State we know the
examiners. The examiners and the Superintendent of Banking
is responsible to local conditions, and we are not afraid of.
oppression there; but when it comes td an examiner from Oregon, or Maine or Georgia, and he comes to Missouri with no
local affiliations, and looking only back to Washington, he is
puffed with the great idea that he is a Federal officer and wants
to exercise all the power of the Federal government. And I
know of no set of men that are more arbitrary than the representatives of the Department of Justice, the Post Office Department, the Department of Labor and Commerce, who go to your
bank and walk in and demand that we should tell them about
the business of our customers; and if we do not do it, threaten
and say, "I will take you to New York," as one tried to do with
me; and did take me to Washington on a subpoena duces
te,cum with our journals. He wanted to know our confidential
relations with our customers. I am afraid of that power. I
believe the Reserve Board could straighten that out and let
their examination come largely from their reserve banks in our
districts, and there we will have directors who are responsible
to local conditions.
I thank you, gentlemen. (Applause.)
At 12.45 P. M. a recess was taken until 2 o'clock P. M.
AFTERNOON SESSION.
TUESDAY, Oct. 13, 1914.
RICHMOND, VA., October 13, 1914.
The Nineteenth Annual Meeting of the Trust Company Section was held in the salon of the Jefferson Hotel on Tuesday
afternoon, October 13, 1914, at 2.30 P. M.
President F. H. Goff in the Chair.
THE CHAIRMAN: Gentlemen, the meeting will now come to
order. The Secretary will read the minutes of the last meeting.
THE SECRETARY: The minutes are not read, Mr. Chairman.
THE CHAIRMAN: The Secretary advises that it is not customary to read the former minutes of the meeting; unless there is
some call for such minutes, they will be dispensed with. They
are published in the annual report, however. I had not intended to read a formal address. In view of the discussion had
at the joint meeting of the Savings Bank and Trust Company
Sections this morning, I thought I ought to have at least the
courage that others had in expressing their views in regard to
the attitude of Trust Companies towards the Federal Reserve
Association, and, with your permission, in a very brief formal
address, I will read my views on that subject.

Annual Address of President Trust Company Section
F. H. Goff, President Cleveland Trust Company,
Cleveland, Ohio.
For more than two months the banking institutions of the country
have been subjected to an unprecedented strain caused by the war
in Europe. It is but just that we record our appreciation of the prompt
and efficient assistance rendered by the Government, without which
serious disturbance, perhaps untold disaster, might have ensued. The
splendid courage and ability displayed by the executive officers of both
National and State institutions in New York City, in dealing with
situations that were not only unknown but undreamt of, has commanded the admiration and respect of the entire country, and let us
hope of the Federal Government. That Trust Companies have survived the strain without failure in their ranks, and have contributed
their full share to maintain the Nation's credit, affords the strongest
evidence of their able and conservative management, and will deservedly add to their standing and prestige.
The crisis through which we are passing has demonstrated, as nothing before in our history, the need of a powerful central bank where
the reserves of the Nation can be concentrated and the outflow of
gold controlled. Grateful as we are for what has been accomplished
under the able leadership of President Wilson in bringing about a
reform in our currency and in perfecting our banking system, we
anxiously but hopefully await the enactment of further legislation
which will insure adequate protection of credits both at home and
abroad should conditions ever arise in this country such as have obtained in Europe since the declaration of war. The real test of a
financial system must be its ability to adequately serve in times of
maximum strain.
Firm in the conviction that impending collisions are more likely
to he averted when there is but one and not twelve levers to be operated, we believe that the tread in the future must inevitably be toward further centralization. While our views with respect to this
differ from those in authority, we wish it to be known that we are
not antagonistic, but sincerely desirous of being helpful in working
out the financial problems of the Nation. The question that confronts
us is how much help can best be given. Will our influence be most
effective by refusing to accept membership, by holding aloof and criticizing what has been done, or can we best serve by co-operating with
the National Banks and the Federal Reserve Board? Will we have
the most influence from without or within/ I believe the Government needs and desires the support of the Trust Companies, and perhaps sooner than we now think they may again need its support.
Those who are not influenced by patriotic motives, perhaps ought to
be by selfish ones. Commending the President as I do for the excel-

lent appointments he made to the Federal Reserve Board and for the
attitude of his administration during the recent crisis, I have come
to have an increasing faith that what is not right will in time be
made right. But, if wrong, it may be well to remember that more
bartles are won by men on the firing line than by men sulking in the
sutler's tent.
THE CHAIRMAN: The next order of business, gentlemen, is the
report of the Executive Committee, Mr. John H. Mason, Chairman. (Applause.)

Report of the Executive Committee, by John H. Mason,
Chairman.
[The report of the Executive Committee will be found on
page 148.]
THE CHAIRMAN: Gentlemen, what is your pleasure in regard
to the report of the Executive Committee?
Ma. DINKINS: I move that the report be filed.
THE CHAIRMAN: All those in favor of the motion, please signify by saying Aye; opposed, No.
Carried.
THE CHAIRMAN: Now, the report of the Secretary.
SECRETARY Bancoca : The details of the financial statement
are published in pamphlet form which you all have, so it is not
necessary for me to report them. All bills paid to August 31.
You will note there is a credit balance of $660.77, which has
been transferred back to the general funds of the Association.

Report of the Secretary, by Philip S. Babcock.
[The reader will find the Secretary's report on page 148 of
this publication.]
Report
On motion, duly made and seconded, the Secretary's
was received and approved.
MEMBERS OF
NOMINATING COMMITTEE APPOINTED TO SELECT
EXECUTIVE COMMITTEE.

order or not;
Mn. JACKSON: I do not know whether it is in
for this
it Is probably not, but as we have only this afternoon
a
business session, I was wondering whether it would be
approper thing for me to offer the usual resolution for the
pointment of a nominating committee by the chair at this time.
Am I in order?
THE CHAIRMAN: It seems to me to be proper—it seems proper
to the Chair.
MR. JACKSON: The resolution that we have had before is:
"Resolved, That a Nominating Committee of five be appointed by
the Chair, which Committee shall receive names in writing from delegates present, and from said names the Nominating Committee shall
select five persons as members of the Executive Committee for the
term ending 1917, said Committee to report back to the Convention
for its action."

I offer that resolution.
A MEMBER: These names to be reported back to the committee or convention?
Mn. JACKSON: Back to the convention, I should say.
THE CHAIRMAN: My understanding is that we should have
nominations, that nominations be made by members in attendance which will be placed by the Secretary in this box. In other
words, names which will occur to you that will make desirable
members of the committee. Other information will be furnished by the Secretary. For instance, the number of member
banks in the different States and the residence of our present
membership--geographical membership. Is there a second to
Mr. Jackson's motion?
A MEMBER: Yes, sir. I second it.
THE CHAIRMAN: If there is no discussion, and the chair hears
none, all those in favor of Mr. Jackson's motion, which has
been duly seconded, please signify by saying Aye; opposed, No.
Carried.
THE CHAIRMAN: I will ask the Secretary to hand the slips
to the members, upon which the members may indicate their
preference. Following the receipt of these, perhaps an adjournment may be taken.
MR. FOYE: What is our representation now?
THE CHAIRMAN: Representation of fifteen; five for one year,
five for two years, and five for three years.
Mu. FOYE: From what Section?
THE SECRETARY: As I understand, Mr. Foye, we have a membership of 1,201. The largest membership is from Pennsylvania, 178; New Jersey has 96; New York 95, and Indiana and
Texas each 45 ; Tennessee, 44—no, Massachusetts has 44; Mississippi, 41. The four largest States, Pennsylvania, New Jersey, New York, Massachusetts, then comes Indiana, Texas and
Tennessee, and Mississippi running very close.
Ma. MCCARTER : Would it be well to say what district the
retiring members are from?
THE SECRETARY: The retiring members—the Constitution of
the Association provides that no member can succeed himself
for a year. The retiring members this year are Mr. Dinkins, of
New Orleans; Mr, Hemphill, of New York; Mr. Smith, of Chicago; Mr. Kauffman, of Tacoma. He died during the year, and
his place was not filled, waiting for one of the five to be elected
at this time.

•

TRUST COMPANY SECTION.

•

THE CHAIRMAN: We will now take a recess for five minutes,
so that the Secretary may pass those slips out.
(ftecess for five minutes.)
After recess:
THE CHAIRMAN: Gentlemen, I want to receive your criticisms
and suggestions, if you have any. I will entertain any objections to the appointment of this Nominating Committee. Mr.
Jackson, the Vice-President of the Girard Trust Company of
Philadelphia; Mr. Platten, President of the U. S. Mortgage &
-President of the Savings
Trust Company; Mr. Woodruff, Vice
Chamberlain, PresiBank & Trust Company of Cleveland; Mr.
dent, I believe, of the San Antonio Loan & Trust Company;
of InMr. Elolliday, President of the Union Trust Company
dianapolis. I would be glad to hear any objections.
MR. MCCARTER: I move that it be approved.
Mn. MASON: I second the motion.
THE CHAIRMAN: The appointment will 'stand, and I will
ask the committee to retire now. You may gather up the ballots, please, Mr. Babcock.
Tun CHAIRMAN: Gentlemen, when you get through with the
caucus there, I will ask Mr. Cutler to read the report of the
Legislative Committee.

Report of the Committee on Legislation.
[The report of the Committee on Legislation will be found on
page 149.]
THE CHAIRMAN: What is your pleasure, gentlemen?
Ma. HoLLinex: I move that it be received and filed.
THE CHAIRMAN: AU those in favor
-of the motion, please signify by saying Aye; opposed, No.
Carried.
THE CHAIRMAN: I ask the Committee on Nominations to be
kind enough to retire. Mr. Jackson, I think you were appointed
Chairman of that Committee. I think you had better take
these. Mr. Woodruff, Mr. Platten and Mr. Holliday.
The next is the report of the Committee on Protective Laws.
Mr. Dinkins, Chairman.
Ma. DiNgrns: This is a report of the Protective Laws Committee of the American Bankers' Association, Trust Company
Section.

Report of the Committee on Protective Laws.
[This report will be found on page 150.]
THE CHAIRMAN: Gentlemen, you but little know the amount
of work devolving on the chairman of that committee. He has
served as chairman of that committee ever since I have been
connected with the Association, and I do not know but what
he has served ever since the Association was organized. It is
customary in passing on the report of this committee to
tender a vote of thanks to the chairman. What is your pleasure in regard to this report?
A MEMBER: I move that a vote of thanks be tendered and
that the report be filed.
THE CHAIRMAN: All those in favor of that, please signify
by saying Aye; opposed, No.
Carried.
STANDARDIZATION OF TRUST COMPANIES.
THE CHAIRMAN: The next order of business is the report of
the Special Committee on the Model Trust Company Law.
MR. FULLER: Mr. President and Gentlemen. This report, in
one form or another has been in the hands of one committee
or another for the past three years. I think it was first referred to a special committee, and after a year's work on this
subject the committee asked to be discharged, and recommended
that it be referred to the Legislative Committee. The Legislative Committee, I believe, worked on it for a year or two, and
recommended that a sub-committee be appointed again to take
up the work where they left off and complete it, and that special committee has, during the past year, had conferences and
some correspondence, and the result is a report which, even in
its present form, is not entirely satisfactory to the committee
itself, although they have at last arrived at what they believe to be the basis, or they have agreed upon certain principles which they think should be incorporated in every Trust
law in the land. Of course, those States which have trust
company laws will not be affected necessarily by any recommendation that this committee might make or any suggestion
that might be made through this report; but this is supposed
to be for the benefit of such States as have no trust company
laws, and in which it is contemplated to pass laws for the
purpose of regulating trust companies, or in States in which
the laws for trust companies are unsatisfactory and amendments are contemplated. The paper is a long one and more or
less technical, and I would suggest, if it is agreeable to the
President and to those present that, instead of reading it in
detail, I may be permitted to give merely the captions with
possibly the substance of the different ,clauses, and then submit it to you for such action as you wish to take.
THE CHAIRMAN: If you proceed in that way, outline it in
the first instance, and if the Convention should desire to hear
it in detail, you may proceed further.

159

MR. FULLER: Originally this was intended to be or designated
as a proposed model trust company law. After several years
of work on it by several committees, we have finally gotten
away from that word "model." We have felt that such a
thing is impossible, and the word is objectionable, and it is
now called "Standard Uniform Provisions Suggested for Inclusion in Trust Company Laws of all States," the idea being
to encourage the standardizing of Trust Company management,
particularly as related to the handling of trust estates rather
than as to the banking features of trust companies that do a
banking business.
First, Capital. It Is deemed necessary, important at least,
that the capital of the Trust Company should be related somewhat to the size of the cities or community in which they do
business. In the law proposed by Senator Aldrich, after much
consideration of that subject not only by Senator Aldrich and
the framers of that bill, but by a special committee appointed
for the purpose, this paragraph was incorporated in the law, and
is taken, I believe, bodily from it as it read: briefly, the capital
stock of any Trust Company organized under the laws of this
State in places having a population of 6,000 or less, shall be
not less than $50,000. In a city of more than 6,000 and not
more than 50,000, shall be not less than one hundred thousand
dollars; in a city of more than 50,000 and not more than 200,000, shall be not less than two hundred thousand dollars; and
so on up to a city of more than 400,000, shall be not less than
five hundred thousand dollars. No Trust Company shall create
more than one class of stock; and its entire capital shall be
paid in before it shall be authorized to begin to do business.
Supervision. Every Trust Company doing business in this
State shall make to the Bank Commissioner not less than five
reports each year, and following very much the lines laid down
in the laws of the older States. There is nothing new in that
paragraph.
Qualification of Directors. Every director must, during his
whole term of service, be a citizen of the United States, and
at least three-quarters of the directors must be residents of the
State during their continuance in office. Every director must
own and shall hold ten shares, at least, of the capital stock.
Examinations by directors are provided for periodically and
reports to be made by them, according to the form prescribed
by the Commissioner of Banking in the several States.
Deposits. Every Trust Company may receive deposits subject
to check or to be repaid in such manner and on such terms and
with or without interest, as may be agreed upon, provided that
no Trust Company shall incur a total deposit liability in excess
of ten times its capital, surplus, and undivided profits. That
paragraph has caused more or less discussion and has been the
subject of considerable thought. It is merely suggested, but it
is sound banking.
Restrictions on Loans. The total liabilities to any Trust Company of any person, corporation or firm for money borrowed,
including in the liabilities of a firm the liabilities of the several members thereof, shall at no time exceed 10 per cent, of
the amount of the capital stock of such Trust Company actually
paid in and its surplus and undivided profits combined.
No Trust Company shall make any loan or discount upon the
pledge of its own stock.
No Trust Company shall make any loan upon or discount any
paper made, accepted, endorsed or guaranteed by any of its
executive officers, or employees, or by any partnership of which
any such officer or employee is a member.
No Trust Company shall permit any single director to become
obligated to it to an amount exceeding ten per centum of its
combined capital, surplus and undivided profits. That is a long
paragraph. That is taken from the present law of many of
the States, and which we are striving to procure in all the
States through our very active Protection Laws Committee,
whose report you have just heard.
Trust Funds Not to Be Mingled, etc. We get down now to
that part of the law which we are most interested in, and that
is the manner of handling trust funds and trust estates.
The next paragraph provides for annual statements and the
form to be made.
The next is the investment of trust funds. Trust funds, unless it is otherwise provided in the instrument creating the
trust, may be loaned in mortgages on unencumbered real estate
in this State, worth double the amount loaned.
Respectfully submitted.
THE CHAIRMAN: Your suggestion is what with regard to the
report, Mr. Fuller?
MR. FULLER: I suggest this report, if approved in principle
by this meeting, of which I have given the substance, be referred again to the committee, which has given it a great deal
of thought, for the purpose of perfecting. We are not entirely
satisfied merely with the phraseology—we have arrived and
agreed on all the provisions which I have outlined to you and
contained in the report, but we would like to eliminate every
unnecessary word and possibly improve the wording slightly,
and therefore your committee is reluctant to hand this report
in as complete without having dressed it up and finishing it
to
their entire satisfaction. I recommend that It be referred
back
to this committee with power, with, perhaps, being
adopted by

160

BANKERS' CONVENTION.

this Convention, and if this Convention sees fit to so adopt
them, with power to return it as the completed report at the
next Convention—to complete it and submit it.
THE CHAIRMAN: Is there a second to the motion?
MR. DINKINS : I second it.
Mn. I:tH.LER : Before a vote is taken on the matter, I suggest
you invite criticism on any of the suggestions outlined, and it
is possible some questions might be asked.
MR. MCKEE: I would like to have the committee read that section which refers to the- liability of officers and directors of the
bank again.
THE CHAIRMAN: Mr. Fuller, please read that section referring to the liability of directors.
Mn. FULLER: No Trust Company shall make any loan or discount any paper made, accepted, endorsed or guaranteed by
any of its executive officers or employees, or by any partnership
of which any such officer or employee is a member.
You will observe that the directors are not included in there.
suggest myself that the word "salaried" be added. And that
is the intent of the paragraph.
MR. EDMONDS: Mr. Chairman, I understand from Mr. Fuller
the investment of trust funds on mortgages is limited to the
State in which the trust company is established. Is that correct?
Mn. FULLER: That is the way it now reads.
MR. EDMONDS: That might prove inconvenient in the case
of a company doing business in a town near the border of two
States.
MR. FULLER: The committee is aware of that possible inconvenience in some such case, but it believes this is a safe principle to start with, at any rate, and any particular State or
locality where it might be necessary could vary any of the
principles laid down in here on account of the existence of special circumstances. It is merely proposed here to lay down
something which the committee considers sound banking, not
with the intention that every State should adopt it in toto or
adopt every word of it. That is the idea. Does that answer
you?
Mn. EDMONDS: Yes, sir.
MR. GRAHAM: I was just going to ask about that provision,
to the effect that no director shall be entitled to a loan of more
than 10 per cent. Is there any provision there in regard to the
aggregate loans to directors under the law? In Pennsylvania
there is a limit to that.
THE CHAIRMAN: My recollection is that it was 20 per cent.
MR. FULLER: No, I think we scruck that out. No trust company shall permit any single director to become obligated to it
to an amount exceeding 10 per cent, of the amount of the
capital stock of such trust company actually paid in, and its
surplus and undivided profits combined at any one time.
THE CHAIRMAN: It may not be that a higher standard obtains in the various States, but we want to get a start.
REPORT OP COMMITTEE ON STANDARD TRUST COMPANY

LAW

RE-

COMMITTED.

MR. Horxiss: I should like to know whether this report will
be in the form that it can be used in the coming year during
the legislative session. I ask that question, because, in our
State, there is likely to be an effort made to reduce the standard which we have set up in that State for the governing of
trust companies, and it would be of material assistance to us
who are before the legislative committees to have an authoritative statement of the best sense of this Section.
THE CHAIRMAN: The very purpose of Mr. Fuller's motion is
that the matter be referred to the Executive Committee, so that
it may be used by the Protective Laws Committee during the
coming year. Immediate consideration may be given with
finally adding to it of any suggestions that may be made, and
then complete it. You have the sanction of the body itself.
It is referred to the committee—Special Committee—continuing
that committee with power to complete it.
Mn, FULLER If has been suggested that the committee would
complete It at as early a date as possible, and have it printed
and copies sent to the membership.
THE CHAIRMAN: Are you ready for the motion? All those in
favor of the recommitment of the report to the committee and
continuing the power of the committee, all those in favor of
that action by this Convention, please signify by saying Aye;
opposed, No.
Carried.
ROLL CALL OF STATES.
THE CHAIRMAN: The next order of business on the programme
is the roll call of the States to be made by the Secretary, and
to be answered by the vice-presidents of the Sections in brief
written reports dealing with the history of the trust companies
in the several States during the preceding year, and with the
conditions under which they are now operating, and other matters of interest now pertaining to them.
We had hoped the vice-presidents in attendance would be
accorded generously the time of this meeting to make reports
and addresses with regard to conditions obtaining in their territory, but it is now nearly 4 o'clock P. M., and we have our

election of officers, and we will be glad to accord, I am sure,
notwithstanding the lateness of the hour, the time for the vicepresidents to make brief remarks and submit brief reports.
Otherwise, the reports may be handed in to the Secretary, and
they will be included or incorporated in the printed proceedings.
SECRETARY BABCOCK: Mr. Chairman, if the reports are not
handed in at this time, or the vice-presidents have not written
them, any time within the next three weeks will do, and will
enable me to get them in the printed proceedings. Any time
In the next thirty days the vice-presidents may hand in their
reports, if they have not them ready to-day, and they may be
sent to the New York office, at which time they can be printed.
The Secretary called the roll of States to be answered by the
vice-presidents of the Section, and the following vice-presidents
responded for their respective States: Kentucky—Mr. Stites,
President of the Louisville Trust Company.
KENTUCKY.

To THE TRUST

COMPANY SECTION

OP THE

AMERICAN BANKERS'

AS-

SOCIATION.

As Vice-President of the Trust Company Section for
the State of Kentucky, I have the honor to report that banking conditions and the underlying conditions of the country were good, hut
there was almost an unnatural demand for money that could not be
supplied, and a general tendency of securities of all kinds to decline
in value, caused—evidently in part caused by the approach of the war
in Europe, which no doubt a number of persons high in authority had
cause to expect in the then near future.
Rates of interest have been steady and satisfactory. Crop conditions at the beginning of the year were in the highest degree goad—
the wheat crop being large and excellent in quality. Then followed
a severe drought, seriously injuring most of the early crops—especially early corn t ad potatoes—but the later rains brought out the
later crops wonderfully. We have had a fair average crop of corn,
oats and hay; an excellent crop of all the late fruits and vegetables
and with probably the best tobacco crop in quality ever raised in the
State of Kentucky.
With the cessation of political activity at Washington and a settlement of European war trouble, this country is in a position to expect a tine business next year.
In legislative matters we had an active session during the year of
our Legislature and an eminently satisfactory one to financial interests.
The bill recommended by the American Bankers' Association to punish persons making false and dangt:ous statements affecting financial institutions was par.cd and is now the law of Kentucky.
For Many years Kentucky bankers bare labored under the injustice
of a grossly unfair Materialmen's and Mechanics' Lien Law, by which
payment of money loaned to railroads and manufacturing establishments was postponed until every other obligation was paid. This
law has been anolished and preferences, except for manual labor performed, have been done away with.
An excellent bill was passed mating the issuing of a check where
there were no funds to meet it a misdemeanor and punishing the offender by fine and imprisonment; ale') a bill making it a felony to
publish a false statement on which credit was obtained, both to the
individual and to the official of a corporation authorizing same. Besides this, an Enabling Act was passed authorizing State banks and
Trust Companies to become members of the Federal Reserve system,
and to subscribe for and be holders of stock therein; also making the
requirements for the legal reserve the same in State as in National
banks.
A most•objectionable bill was introduced into the State Senate creating a "State Guarantee of Deposits," along the lines of the most
drastic of those which have been adopted in some of the Western
States. We succeeded in defeating this.
There was also defeated in committee a bill prohibiting a Notary
Public who was an employee of a bank or Trust Company from
taking the acknowledgments of its officers to official papers.
A bill was also defeated creating a system of "Rural Credit Banks,"
which contained no restrictions as to the conduct of its business, per.
Hitting capitalization as low as $2,000.00. Its tendency would
have
been to have brought all kinds of banking business into disrepute.
In addition to this, an attempt to amend the Revenue Laws in a
way that would have been very unjust and unfair to financial institutions, was defeated.
Altogether, the financial institutions of Kentucky received from the
Kentucky Legislature this year absolutely fair and just treatment.
GENTLEMEN

Respectfully,
JOHN STITES.
Illinois.—Lucius Teter, Vice-President from Illinois of Trust
Company Section.
ILLINOIS.

THE MEMBERS,
ASSOCIATION.

TRUST

COMPANY

SECTION, AMERICAN

BANKEns'

GENTLEMEN:

The Legislature of Illinois has not met since our last Convention,
consequently there have been no changes in our laws in that period.
The only decision handed down by our courts of particular importance to Trust Companies was in the case of Chicago Title & Trust
Company vs. Zinser, where the question involved was whether or not
the consolidation of Trust Companies into a new corporation affected
the powers donated to the constituent companies. It was contended
in the case that powers in trust were personal and confidential, and
that the same could not be transferred to a new corporation, even
by way of consolidation; but our Supreme Court held otherwise, and
the law is now settled that the consolidation of Trust Companies, even
though the effect be to form a new corporation, does not destroy previous powers vested in the constituent companies.
Prior to preparing this report, I corresponded with representative
Trust Companies in all sections of the State, and find that the Trust
Company business is growing in all sections. In the smaller cities

161

TRUST COMPANY SECTION.

•

and towns the growth is somewhat slower than in the larger communities, but definite progress was reported in every quarter.
In our State most all of the Trust Companies also do a banking business, and the reports reflect substantial business conditions in the several communities.
So far as we have been advised, only one important trust company
in Illinois has indicated an intention of joining the Federal Reserve
Association.
The question of the propriety of Trust Companies advertising to
draw wills free of charge, which question was discussed so ably before
our Convention in New Orleans by Mr. Marquis Eaton, of the Chicago
Companies—I believe that no Trust Company in Chicago is now advertising to draw wills free of charge, although no definite policy as
generally adopted.
to the drawing of wills seems to have been
My impression is that this subject is one which should receive atjoint conference of lawyers and Trust Companies in
tention through
the small communities and by representatives of Bar Associations and
Trust Companies in the larger cities. A complete working understanding should be had with respect to this question, which is of so much
importance to all parties concerned.
Respectfully submitted,
LUCIUS TETER,
(Signed)
Vice President for Illinois Trust Company Section, American Bankers'
Association.
Michigan.—c. 0. Patch, Vice-President of Trust Company
Section for State of Michigan.

MICHIGAN.
Rtefintonin, Ve., October 13, 1914.
Mr. F. H. Goff,
President Trust Company Section, American Bankers' Association.
Dear Sir:
The six Trust Companies of Michigan have had a good year thus far,
notwithstanding conditions existing during the past month or so. As
the laws of the State do not permit the Trust Companies to transact
a banking business, any important increase or decrease in business
is not reflected in the deposits shown in their respective published
statements.
They have no savings accounts, no checking accounts, no demand
money. Such deposits as they are permitted to receive are evidenced
by Time Certificates of Deposit. Add to these the cash balances in
corporate and personal trust accounts and you have the Companies'
total deposits.
During tile year all of these have decreased less than $500,000.00,
while surplus and undivided profits, after payment of regular dividends,
have increased in round figures $490,000.00, the total capitalization
of the Companies being $3,150,000.00.
This showing is due largely to increase in corporate and personal
or estate trust business. The courts and the people of Michigan are
realizing to a greater extent than ever before the advantages that
result from the appointment or employment of a corporate trustee.
There has been no change in the laws governing the Trust Companies of the State, as the legislature has not convened during the year.
Respectfully submitted,
C. 0. PATCH, Vice-President,
State of Michigan.

MISSOURI.
MR. JAMES M. BROCK, SECRETARY, MISSISSIPPI VALLEY TRUST
COMPANY, ST. Loins.
As Vice-President of the Trust Company Section of the American
Bankers' Association for the State of Missouri, I have the honor to
report concerning the history of the Trust Companies in my State during the preceding year, the conditions under which they are now operating, and other matters of interest now pertaining to them.
During the past year, six Trust Companies have been organized, with
capital stock aggregating $1,525,000; one with a capital of $100,000
has voluntarily liquidated; one with a capital of $50,000 has been
placed in the hands of a receiver and its affairs are still in an unsettled condition, and another one, Trust Company only by name, not receiving deposits nor transacting a geeral Trust Company business, has
just been placed in the hands of a receiver and is really the only one
that has been a source of any special trouble.
At the annual convention of the Missouri Bankers' Association held
at St. Louis in May, a special committee of seven representatives of
State Banks and Trust Companies, to be known as the "Commission
on Banking," was appointed to consider and report on (1) various
amendments made desirable to our State laws on account of the Federal Reserve Act, (2) a bill authorizing a rural credit or land bank,
and (3) a general revision and harmonizing of the laws of this State
relating to banking. This Commission to make report to the Governor of the State before the convening of the Legislature in biennial
•
session next January.
The last official call by the Bank Commissioner shows that there are
sixty-three Trust Companies in Missouri, with resources aggregating
$177,216,613.3 total capital stock of $20,723,600.00, surplus of $17,4,
739,643.30, net undivided profits of $5,391,945.52, and total deposits
,
$130,509,379.55 of which $38,829,701.38 are savings deposits. I
of
can, with confidence, report that, in addition to this splendid showing, the Trust Companies in Missouri were never in a stronger or more
satisfactory condition than they are to-day, although the United States,
in general, is at this moment embarrassed by serious financial and
commercial conditions for which It is not in itself to blame.
Due largely to the education of the people, there is a gradual growth
of the usefulness and adaptability of the Trust Companies over individuals, in acting in all fiduciary relations.
In conclusion, I may say that the healthy condition of the Trust
Companies only reflects the general prosperous situation in the great
commonwealth which I have the honor and pleasure to represent.
Missouri, "the land of opportunity," sends greetings and wishes you
success in your undertakings,
Vermont.—William W. Russell, Vice-President of the Trust
Company Section for the State of Vermont.

VERMONT.
REPORT TO TRUST COMPANY SECTION, A. B. A.
MR. PRESIDENT AND GENTLEMEN: The Trust Companies of Vermont
are largely performing the functions of commercial and savings banks,
and their trust functions have not yet been developed to so large an
extent as in many other States. There is a steady increase in the
number and amount of trusts administered by these corporations, but
their principal field is still that of banking.
As to the deposits carried, the savings is much the larger class,
being about ten times the commercial deposits. The 4 per cent, rate
is practically universal on savings deposits, and tax of seven-tenths
of 1 per cent, is paid to the State on the average deposit (both commercial and saving), no deduction being allowed. A feature which
seems unjust to the Savings Banks and Trust Companies is that Charitable, educational and religious funds, which, in the hands of the
institutions owning them, are exempt from taxation, become taxable
the moment they pass into the hands of a Trust Company, either as
a deposit or for administration as a trust.
Some of the Trust Companies are called "Savings Banks and Trust
Companies," and the permitted investments are all practically those
legal for mutual Savings Banks. Depositors are well safeguarded, as
capital and surplus are required to equal at least 10 per cent, of
deposits, and the stockholders are liable to assessment for an amount
equal to their paid-in stock.
A few companies are operated in connection with National Banks, the
principal object of the dual organization probably being the facilities
afforded for loaning on real estate.
The membership of the Vermont Bankers' Association is almost
equally divided between State and National Banks, there being fortytwo of the latter, and of the forty-one State Banks, twenty-eight are
stock Savings Banks and Trust Companies and thirteen are mutual
Savings Banks.
Business conditions in Vermont are subject to comparatively little
fluctuations. The growth of savings deposits is steady and withdrawals tills fall have not been, as a rule, abnormal, according to the
best information I have been able to obtain.
Respectfully submitted,
WI!. W. RUSSELL,
Vice-President for Vermont.

REPORT OF HERBERT W. JACKSON, VICE-PRESIDENT FOR VIRGINIA.
VIRGINIA.
On behalf of the State which has the honor of entertaining this
great Convention, I report that Virginia is waking up to the fact that
fertile fields are around about us for the Trust Companies.
For example, in Richmond a year or two ago the amount of capital
and surplus of the Trust Companies here was $700,000.00; to-day the
amount is $5,000,000.
There are twenty-three Trust Companies in the State. but of these
not half a dozen are making a feature of Trust Business. The others
are simply banking institutions.
Tile citizens of this Commonwealth are an ultra-conservative people,
and have been shown to recognize the superior advantages offered by
the Trust Company over the individual acting as Executor, Trustee,
etc.
Richmond, being the capital and largest city of the State, has set
the pace in the endeavor to educate toe public along these lines, and
we expect to see Norfolk, Lynchburg and other large cities wake up
and follow suit by establishing these institutions whose chief business
shall be along strictly fiduciary lines.
In the matter of educating the public to make use of the services
of the Trust Companies instead of individuals as Executor, Trustee
and Guardian, I desire to commend in the strongest terms the work
being done by the publicity department of the Trust Company Section.
These articles, which have been written by some unknown expert,
cannot be too highly commended.
The purpose of the Committee in furnishing this valuable ammunition to the Trust Companies throughout the country is for the companies in the various cities to have the local papers reproduce these
articles. They are written in a convincing style—they arrest the
attention of intelligent men, and in my opinion, when thus used, will
bring untold benefit to our cause.
In some cities where the newspapers charge regular advertising rates
to run the articles, the local Trust Companies have shared the cost.
In other cities the papers have made no charge, on the theory that
the Trust Companies are large advertisers, that their business is beneficial, and helps them to help the community.
One of our Richmond morning papers takes this ground and has run
a number of these articles, and I am confident the local institutions
have derived much benefit.
In closing. I again commend the use of these articles in the manner
suggested. It means dollars added to profit and loss account to every
Trust Company in every community which embraces the opportunity to
educate the people in this important matter.
Respectfully,
IT. W. JACKSON,
President Virginia Trust Co., Richmond, Va.
Nebraska.—R. C. Peters, Vice-President of the Trust Company Section for the State of Nebraska.

NEBRASKA.
Since the report of last year we have not bad a meeting of our
Legislature, so there has been no change in our Trust Company laws.
Our Legislature meets this coming winter, but as yet I know of no
contemplated changes in legislation affecting us. We are not permitted to do any banking. Our laws confine us to Trust Company
business alone. In this respect, as I reported last year, we have
very complete and conservative laws.
Would state that since we had the Trust Company laws passed
in
1911 there has been a slow and steady growth in the Trust Company
business. The people are being educated to place their
estates with
frust Companies. This is a matter of education and
necessarily of
slow growth, but the increase in the business is quite
satisfactory.
It may be of Interest to report crop conditions
in our State this

162

BANKERS' CONVENTION.

year. Our corn crop is about 82 per cent, of the normal crop and
the yield is estimated at 150,235,000 bushels. The wheat crop is
142 per cent, of the normal and is estimated at 69,732,953 bushels,
The crop of oats is about 130 per cent, of the normal yield and is
estimated at about 71,413,531 bushels. Our alfalfa is quite a crop in
this State and is estimated at 136 per cent, of the normal crop.
Making these figures more concrete and taking all of our Crops In
this State, the value Is estimated at $279,702,811. The value of all
the crops for this year exceeds a normal crop by $57,751,395. This
gives about $50 extra above normal to each inhabitant of this portion of the Great American Desert, to help Eastern manufacturers dispense with the foreign market:.
Washington.—James C. Cunningham presented his report for
Washington.
PRESIDENT AND VICE-PRESIDENT TO REPRESENT THE
SECTION ON EXECUTIVE COUNCIL OF A. B. A.
MIL POILLON : There is one matter I would like to suggest.
The new Constitution of the American Bankers' Association
which was adopted by the Convention a year ago and since our
last annual Convention, provides that the Executive Council
shall be made up in a certain manner and includes the presidents of the Section, ex-officio, and any Section having more
than 1,000 members may elect one additional official as a
member of the Executive Council, ex-officio. I do not find by
reference to our by-laws that we have made any provision in
our by-laws for that classification of the members of this Section as to who shall be on the Executive Council. A year ago
our meeting was held prior to the meeting of the Annual Convention, and it was at that Convention that the Constitution
was adopted. I have looked up the proceedings and I find in
advance of the adoption of the new Constitution, without knowing then what the requirement would be, the following resolution was adopted a year ago: Resolved, That it is the sense
of this meeting that the new Chairman of the Executive Committee be the nominee of this Convention to represent the Trust
Company Section as the second officer on the Executive Council
of the American Bankers' Association under the revised Constitution.
That resolution was adopted by our meeting. Now, I would
like to move as an addition to our by-laws the following: That
the President and the First Vice-President of this Section shall
represent this Section in the Executive Council of the Association.
My reason for changing the second member of the Council is,
that the work of the First Vice-President of the Section, unless
during the absence or disability or inability of the President, is
absolutely nothing; he is almost out of touch with the affairs
of the Section, except as a member of the committee. It is
upon the Council that I am satisfied he can do the best work.
When a member of the Council is only a member a year, his
work is almost nothing, although he has some voice; there are
perhaps only about two meetings which he attends. It is not
until the second or third years of his membership on the Council that he feels disposed to take much part in the affairs or
deliberations of the Council. I feel it would be a wise thing
for this Section to change our represcentative on the Council.
We are now about to elect a new member, or, rather, a new
Chairman for our Executive Committee, and, of course, no one
knows who that will be, so that there is nothing personal in
what I have stated.
THE CHAIRMAN: You move the amendment?
Ma. PoILLoN : I move-that addition to the by-laws.
THE CHAIRMAN: What Section?
Ma PoiLtoN : No section; in its proper place.
THE CHAIRMAN: Then, as I understand it, the president and
vice-president shall represent the Section in the Council?
Ma. MASON: I think Mr. Poillon's suggestion has quite a lot
of force in it. I happen to have been the chairman on the
Council this year, but I must confess that I feel the man who
happens to become the chairman this year will have the same
work that most of us have had, which of course is very light,
and I think he ought to be in closer touch with the whole Association than the vice president. It seems to me that the vice
president is always a sort of—well, they are just there because
you cannot help it; it is so in everything; and I must confess
the hardest work done in the Trust Company Section is done
by—I don't mean to seem personal in any way—the hardest
work is done by the chairman of the Executive Committee, and
closer
I want to put that over with emphasis, and I think the
Bankers Assotouch that is had on the Council of the American
the Section,
ciation the better it is for him and the better for
has been during
and I hope this meeting will let it stand as it
of the Executive Comthe past year and the incoming chairman
additional labor.
mittee will have the privilege of that
MR. STITES: I second the motion.
his motion in these
MR. FULLER: I agree. with Mr. Mason on
Poillon ; and I
by-laws, and I do not agree altogether with Mr.
recollection is
think this matter was discussed at the time. My
the Execuselected the president and the chairman of
that we
presirather than the president and the vice
tive Committee
president, in the
dent, for the reason that we thought the vice
represent him,
absence of the president, might be permitted to
reaand it would give us two members, and for the additional

son that, as Mr. Mason has stated of him, would bring him in
closer touch. I am not entirely in accord with Mr. Poilion.
Txm CHAIRMAN: Do I understand you to suggest the amendment designating the president and the chairman?
Ma. FULLER: Yes.
•
MR. MASON: I second that motion.
THE CHAIRMAN: The question comes on the adoption of the
amendment proposing the president and the chairman as members to represent the Section on the Executive Council. All
those in favor, please signify by saying Aye; opposed, No.
The amendment is lost.
Now, are there any remarks on the original motion? As many
as are in favor providing for the president and the vice president to represent the Section on the Executive Council, please
signify by saying Aye; opposed, No.
Carried.
VOTE OF THANKS TO RICHMOND.
THE CHAIRMAN: I would suggest that some one voice a vote
of thanks to the bankers of Richmond for their gracious
'courtesies to us while here.
Mn. PETER: I move that the Secretary or the Chairman of
this meeting extend a vote of thanks to Richmond for their
hospitality at the time of this Convention.
TIIE CHAIRMAN: All those in favor of the motion, please signify by saying Aye; opposed, No.
Carried.
COMMITTEE TO SECURE MODIFICATION OF FEDERAL
RESERVE ACT.
THE CHAIRMAN: At the Joint Meeting, this morning, it was
moved and carried that a committee of twelve be appointed to
confer with the Federal Reserve Board and the committees of
Congress with respect to securing modifications to the Federal
Reserve Act, making more acceptable the accepting of membership in the Federal Reserve Association by State Banks and
Trust Companies. It was suggested that the committee be constituted as follows: Three to be appointed by the Trust Company Section, three by the Savings Bank Section, six by the
General Association, three to represent the National Banks and
three the State Banks. What is your pleasure with regard to
the recommendation of the Joint Meeting?
Ma. MASON: Mr. Goff, may I ask you one or two questions.
As I understand it that was the sense of that meeting, and, if
we appoint a committee, it seems to me this Section should pass
a resolution appointing such a committee by authorizing the
president to do so. Personally, I am not in accord with this
thing. I believe that we can have proper amendments made to
the Federal Reserve Act so that the Trust Companies will find
it to their advantage to go into it. I think it can be better gotten by a committee from the Trust Company Section instead of
these joint committees, and therefore I feel that if this thing
was referred to your Executive Committee, they could appoint
any special committee if they wish or not; and perhaps that
committee could appear at Washington, and from their particular point of view, I think we could have a great deal more
influence and do a great deal more for our banks than by having a committee of twelve. As I understand it, that was merely
a recommendation that this Section should consider that matter.
As I see it, the meeting this morning had no legislative status
at all. Of course, if this Section thinks that It is better to do
it that way, all right.
THE CHAIRMAN: Of course, that was not binding on us at all.
Ma. MASON: I think they would get more in this method than
the one suggested at the meeting this morning.
MR. FULLER: Mr. Chairman, I believe that we would make
better progress if this Section should select a committee—as
Mr. Mason has suggested, the Executive Committee is a very
large committee—I think it would be better to have a selected
committee of five or seven, with power to appoint in case of
the organization of such a committee from several Sections, as
has been suggested, a sub-committee of that committee of three
to represent the Trust Section on any such joint committee.
My suggestion is, and I move that a sub-committee of—before
making the motion, my idea is a committee of three is too small
to represent the various elements. My idea ,is to have men
from different parts of the country so that we would have an
abundance of opinion rather than to depend on a committee SO
small as three in number. My idea is to cover this subject by
appointing a committee of seven or five—not to exceed seven—
by the president of our Section, with power to appoint a subcommittee.
Mn. MCCARTER : I am opposed to the whole business. I voted
for that resolution this morning in order that the final action
of the Section might be postponed at least one year. I do not
believe any five, seven or anyone or any committee of the whole
are in a position to know what they want at the present time.
I am not very much in favor of a committee taking any action
whatever at the present time. Let us see how we get along,
how the new act works.
MR. FOYE: I move the matter be laid on the table.
Ma. CHAMBERLAIN: I believe we have acted with the Savings
Bank Section, and it seems to me they ought to be promptly

TRUST COMPANY SECTION.
notified at once here of the action of this Section. I believe
you are treating the Savings Bank Section unjustly if you do
not advise them at once.
Mn. MASON: Mr. Goff, I don't agree with Mr. McCarter at all
on this thing.
THE CHAIRMAN: The matter comes up on a motion of Mr.
Fuller. He moved the appointment of a committee of five to
confer with the Federal Reserve Board and maybe with committees of Congress, to secure amendments, if possible, to the
Federal Reserve Act, making more acceptable the acceptance
of membership in the Federal Reserve Association by State
Banks and Trust Companies. That committee, if I understand
Mr. Fuller's motion. is to have power to designate three to cooperate with committees to be appointed in the manner provided for their benefit.
Mu. MASON: I thought it was a committee not to exceed
seven?
THE CHAIRMAN: Yes.
Mn. MASON: I would like to offer an amendment to that—
namely, that the matter be referred to the incoming Executive
Committee of the Trust Company Section.
A MEMBER: I second the motion.
THE CHAIRMAN: Are you ready for the question? All those
in favor of the motion, please signify by saying Aye; opposed, No.
Carried.
Mu. FOYE: Should we not notify the Savings Bank Section?
THE CHAIRMAN: I don't know whether we will be in a position to advise them of the action of the Executive Committee.
Mu. Forn: I think we ought to advise the chairman of the
ExeCutive Committee.
NOMINATIONS AND ELECTIONS.
THE CHAIRMAN: Is the Committee on Nominations ready to
report?
Mn. JACKSON: Your committee, after very lengthy and careful consideration, reports the following names for submission to
the Convention:
R. L. Rutter, Vice-President of the Spokane & Eastern Trust Company, Spokane, Wash.
Ernest Woodruff, President of the Trust Company of 'Georgia,
Atlanta, Ga,
H. W. Jackson, President of the Virginia Trust Company, of Richmond, Va.
Lucius Teter, President of the Savings Rank & Trust Company of
Chicago, Chicago, Ill.
And overriding his objections because of a sense of embarrassment
in having his name reported to the Convention, in deference to the
wishes of the people who vote, John H. Holliday, President of the
Union Trust Company, of Indianapolis, Ind.
THE CHAIRMAN: What is your pleasure, gentlemen?
MR. DINKINS: I move the Secretary be instructed to cast a
ballot for those five names for members of the Executive Council next year.
THE CHAIRMAN: Are you ready for the question? All those
in favor, please signify by saying Aye; opposed, No.
Carried.
MR. PULLER : I desire to place in nomination for President
one of our oldest members in point of service and a most efficient man, who has served on almost every committee we have
had, and served faithfully and well; one of our youngest members in point of youth, virility, and mind and body, and a man
who would be an honor to the Section, and who, I am sure,
would advance its cause in every way •possible as the presiding
officer. I refer to Mr. Ralph W. Cutler,'whom you all know.
THE CHAIRMAN: Is there any objection to having the 'ballots
cast? I instruct the Secretary to cast the ballot for Mr. Cutler.
THE CHAIRMAN: All those in favor, please signify by saying
Aye; opposed, No.
Carried.
THE SECRETARY: The Secretary reports that the ballot has
been cast.
Mr. Cutler at this point was escorted to the Chair, taking
his seat as President.
Ma. Gorr: Mr. Cutler, one year ago I had the honor of inducting you to the office of Vice-President. It is a greater
honor to induct you into the office of President and confer
upon you the insignia of your office. You are, as Mr. Fuller
has said, a veteran in the service; you have merited the promotion and the honor that comes to you. I bespeak for you
the same cordial support that has been given me during my administration.
PRESIDENT CUTLER: Mr. President, and Members of the
Trust Company Section: I thank you most sincerely for the
honors you have now conferred upon me, but, in order to make
my administration a success I shall have to call for your cordial co-operation. This you have always given me in the past,
and I am sure you won't fail me in the future in order to
make my administration a success, which I hope it will be.
Mr. Secretary, the next business is the election of VicePresident.
Mn. MASON: I have been on my feet quite frequently to-

163

day. A little while ago I received a most chilling reception
on the part of this audience assembled here, and therefore it is
my turn to do something that everybody will heartily approve
of. I want to say that Mr. Goff, who has just gone out of the
Presidency, that you owe him an obligation; you owe him a
debt that you never can pay; in season and out of season he
has been thinking of your interests all the time; working hard,
getting old in the service and rendering service, I believe, that
has equaled any President's services to this Section, and I for
one take great pleasure in having the privilege of presenting to
you just a little cup, a loving cup of the size that you always
can drink out of. God bless you and keep you, and Mrs. Goff,
too.
MR. GOFF: Mr. Mason, I cannot help but be deeply touched
by what you have said. I am doubly grateful for the beautiful
gift you have made. It will be a lasting remembrance with the
lengthening of the shadows and of the pleasant and agreeable
times I have had in my association with you, and I hope of the
lasting friendships I have made.
MR. JACKSON: Mr. President, is it in order for me to make a
motion for the election of the office of First Vice-President?
PRESIDENT CUTLER: Yes.
MR. JACKSON: I would like to offer for that office a man who
has been conducting affairs in his sphere of this Association,
one who is most able. Some one has said to-day that the Executive Committee, some of them, had complained that they had
not enough to do. I may say that he complained that he did
not have enough to do, but I think he had more than enough to
do, and he did it well. On the shoulders of the chairman of
the Executive Committee falls a great deal of the work for the
year. He has discharged that, and you have heard his eloquence so that you know he still has a voice. I am seriously
speaking, however, and I want to offer the name of Mr. John
IT. Mason, your present chairman of the Executive Committee,
for the office of First Vice-President of the Association.
Mn. DINKINS: I second the nomination, and move that the
nominations be closed.
PRESIDENT CUTLER: Those in favor, please signify by saying
Aye; opposed, No.
So ordered.
MR. DINKINS: I want to say that I have been a member of
this Section ever since its organization, and I think Mr. Mason
has made one of the most efficient chairmen of the Executive
Committee that we have ever had. He is not as handsome as
Mr. Jackson, but in every other respect he is his equal.
PRESIDENT CUTLER: The Secretary is instructed to cast a
ballot for Mr. John H. Mason for the office of Vice-President—
for the office of First Vice-President.
THE SECRETARY: I beg to report that the Secretary has cast
the ballot for Mr. John H. Mason for First Vice-President, as
instructed.
PRESIDENT CUTLER: And I am happy to declare Mr. Mason
elected. Now, will Mr. Dinkins and Mr. Jackson escort Mr.
Mason to the Chair?
Mr. Dinkins and Mr. Jackson escorted Mr. Mason to the
Chair accordingly.
PRESIDENT CUTLER: Mr. Mason, It gives me a great deal of
pleasure to pin that badge on your coat (pinning badge on
Mr. Mason's coat). You have earned promotion.
Ma. MASON: Here I am again. I want to thank you all for
letting Mr. Cutler pin this police badge on my lapel. (Laughter.) I am quite sure that you all fully realize that there is
nothing pre-arranged here. This thing is all spontaneous.
(Laughter.) It was on the spur of the moment. Mr. Jackson nominated me, and he is one of my keen competitors in
Philadelphia, and I suppose that means I must not take any
of his business any more. I thank you very much.
THE SECRETARY: The next order of business is where no
Vice-President has been named by the Association, the election
is left to the Executive Committee, who are always called upon
to receive suggestions from those present.
Now, the States have made their nominations to the State
Committee, and any other suggestions will be received here by
the Executive Committee and acted upon.
PRESIDENT CUTLER: Will you allow the Executive Committee, as usual, to fill any vacancies that may occur in the list
of Vice-Presidents? I hear no objection, so that course will
be adopted.
Ma. CUNNINGHAM: I move that a resolution be offered to the
family of our old-time friend and officer of this Association,
Mr. kauffman. I move you, sir, that a resolution be adopted
and the Secretary be instrucled to transmit the same to his
family.
MR. MCCARTER: That has already been attended to by the
Executive Committee.
PRESIDENT CUTLER: Gentlemen, all in favoi of the motion,
please signify by saying Aye; opposed, No.
Carried.
PRESIDENT CUTLER: There being no further business, on motion, the meeting will adjourn.
Ma. MCCARTER: I move that the meeting be declared adjourned.
MR. CHAMBERLAIN: I second the motion.
PRESIDENT CUTLER: The meeting stands adjourned.

SAVINGS BANK SECTION
AMERICAN BANKERS' ASSOCIATION
Thirteenth Annual Meeting, Held in Richmond,Va., October 13, 1914

INDEX TO SAVINGS BANK PROCEEDINGS
Savings Bank Bonds, A. M. Harris
.
Page 164
N.Y.Savings Bank Amendments, E. C. McDougal Page 169
Report of Executive Committee
- Page 173
Report of Committee on Methods and Systems
- Page 173
Report of Secretary Page 173

Report of Membership Committee Report of Law Committee
Report of Committee on Postal Savings Banks
Detailed Proceedings
Address of President Sartor

Page 174
Page 174
Pag 175
Page 176
Page 176

Savings Bank Bonds in the Light of Recent Developments.
BY ARTHUR M. Helms, of Harris, Forbes & Co., New York City.
The subject which it has been suggested that I discuss
with you to-day is "Savings Bank Bonds in the Light
of Recent Developments." That it is not in the dark of
recent developments is my conviction; for I am sure you
gentlemen share with me the knowledge that to allo,v
a temporary and present unfortunate state of affairs to
exert a dominant effect upon one's judgment of the past
or of the future is as bad for one's disposition as for
one's pocket. A present calamity is always the worst
that has ever happened. Look back through history and
you will find it so. It seems to me that most of us have
paid too much attention to the obvious and apparent
things in regard to the European war. We all know
that a large amount of fixed capital is being destroyed,
and it is natural to assume that this inevitably means
generally higher rates of interest for money. It is at
least doubtful, however, if the obvious conclusions which
are being drawn are 100 per cent. true, and, in fact, if
some of these conclusions are even correct to any considerable extent.
Few realize, for instance, what a wave of economy is
sweeping over this country, and the effect it may have
on the amount of new available investment capital. It
is unquestionably true that never before in the history
of this country has there been such a widespread movement of economy, which extends not only to personal
expenditures, but also to the expenditures of corporations and business houses generally. Following the panic
of 1893 there ensued a general movement of economy.
This economy, however, differed radically from that
which we are witnessing at the present time. The panic
of 1893 was followed by general industrial prostration
and a large percentage of unemployed in every line of
industry. Still, the economy of that period resulted within a few years in the greatest accumulation of investment capital we have ever seen, and a general upward
movement of the prices of securities, which continued
uninterruptedly for nearly ten years.
The economic and industrial conditions at the present
time are not to be compared with those following the
panic of 1893. Aside from certain industries and busi-

nesses" which have been especially affected there is employment throughout the country. The wave of economy, therefore, means a much more enormous and rapid
accumulation of capital than ever occurred before.
The economic iosses resulting from wars are usually
exaggerated, as shown by the industrial conditions
which exist when peace is restored. It is estimated that
the European war is costing as high as $50,000,000 a day.
This is, of course, a huge sum. But you must remember
that you are dealing with huge figures all around. The
population of the nations directly engaged in the European war is over 300,000,000. An average saving of only
16 cents a day for this number of persons would amount
to over $50,000,000 a day. It should also be remembered
that the destruction of battleships, forts, gunpowder,
etc., is not a new loss of capital. This was paid for
before the war started, and the loss of capital occurred
when these articles of war were constructed and manufactured during times of peace. In fact, the great losses
of capital and economic wastes occur during times of
prosperity, whereas capital is accumulated during periods
of depression. Certainly never before in the history of
this country has there been such a wave of economy.
With a population of 100,000,000 in this country, it would
require only a relatively small reduction in wasteful
expenditures for us to accumulate a saving amounting
to hundreds of millions of dollars a month.
This wave of economy which is sweeping over the
country is of the greatest importance to you. It means
that persons who have never previously been in the habit
of saving will begin opening savings accounts, and that
others who already have savings accounts will increase
the size of these accounts. If this result occurs it will
mean that you will not be called upon to sacrifice your
holdings of high-grade investments at the present depressed prices. In other words, you will not be called
upon to suffer any actual losses in your investments, but
will be able to continue to hold these bonds until they
mature, when you will receive in payment their par
value, or just what you expected when you purchased
them.

SAVINGS BANK SECTION.
In addition to the wave of economy there is the wonderful outburst of individual enterprise that invariably
follows a war. Explain it in whatever way you please,
it is, nevertheless, a fact that the greatest enterprise, the
greatest energy, the greatest ingenuity, invariably immediately follow a great war. It is this combination of
conditions which probably explain the rapidity from
which people often recover from the devastating effects
of a war. Gentlemen, the world moves by tides, not by
waves—fierce as the latter may seem as they strike one.
And according to the tides should one's judgments be
made. I am sure that no one familiar with the sound
Industrial and economic structure of this country can
believe that the high tide of this country's prosperity
has been reached.
In a discussion of Savings Bank bonds one finds one's
self touching upon, if not the largest phase of the investment business, certainly one of the most important,
one of the most exacting and one to which investment
bankers are giving a deeper study than perhaps many
of you realize. In fulfilling few other investment requirements is the element of responsibility so constantly
present. The restrictions which our Savings Bank laws
place around your choice of investments are often of
more seeming than real value. To invest wisely under
the prescribed limitations requires a knowledge of conditions at the time of investment which is impossible
save to those who are intimately in touch with the situation from day to day. I would now like to touch as
briefly as the complex nature of the subject allows, on
the two main groups-of bonds available for Savings Bank
investment.
First, municipal bonds, and by this group I comprehend all such obligations as are issued by communities—
National, State, city or district—and such as depend for
the payment of principal and interest upon the taxing
power of the community in question. It is this group
that has been found of late in particular favor by Savings Banks. There has never been a time when the Savings Banks did not naturally piefer as large a proportion of Municipal Bonds among their holdings as possible,
but the relatively smaller income on this class of securities led to the investment in those securities paying the higher rate of interest. With the larger number of eligible Municipal Bonds, due to changes in
recent years in the Savings Bank Acts, has come a relatively higher income, and has no doubt largely accounted
for the larger proportion of Savings Bank investments
in the last few years being made in that class of security. We hear much of municipal extravagances and
tile increasing public debts without very much intelligent
discussion on the other side of the question. I venture
to make the statement that the average municipality today, with twice the debt which it had ten years ago, is
really less debt burdened than was that community a
decade ago. Even the younger men of us Can remember
when municipal expenditures for public improvements
were almost wholly confined to non-productive purposes,
such as streets, sewers, public buildings, returning no
cash income, etc., and when a publicly owned water
works was the occasional exception to this rule. Since
that time most of the larger municipalities have spent
large sums, and most of it rather wisely, for the acquisition or construction of income producing properties. The
result has been that such expenditures have represented
no burden upon the taxpayer from year to year, -but
rather have tended to bring in an actual net revenue:
This situation has been recognized in a small degree.in
the Savings Bank Laws, where under certain conditions
the proportion of indebtedness to taxable values allowed
has been increased. I think it is only fair to say that
these increases have been smaller than might have been
fully justified by a careful consideration of the subject
as a whole.
. There has been one other noteworthy change through-

165

out the country on municipal indebtedness which has
also received little general discussion, although we know
that most Savings Bank officials are aware of the change
and have either consciously or unconsciously given consideration to it in the making of their investments. I
refer to the more scientific regulations in the creation of
municipal indebtedness and the provisions for its payment. It is not many decades ago when the creation of
a municipal indebtedness was accompanied by little or
no provision for the payment of the MU itself, it being
deemed sufficient that provision be made for the interest,
the principal being allowed to be refunded. This is decidedly the exception now, and those States which have
neglected to improve their laws in this respect are today suffering through the higher cost of borrowed
money. A concrete case of this disposition to pay off
indebtedness within a reasonable length of time is the
Massachusetts law.' This requires the issuance of serial
bonds, the longest maturity of which shall be within the
life of the improvement made with the proceeds of the
issue. A similar law now applies to certain classes of
municipalities in New York State. The recent loan by
New York City carried with it a contractual relation
with the banks which made the loan whereby a large
amount of financing which would have been spread over
the usual fifty-year period, will, instead, be made on the
basis of a serial loan not to exceed fifteen years.
it may interest some of you gentlemen in your leisure moments to study the last two reports of the Census
Bureau of the United States, which I believe is known
as the "Census of Commerce and Labor." These give
the assets of all of the larger municipalities in the United
States, and are so subdivided that the non-productive
assets are shown separately from the "salable assets."
Included in this latter class are real estate and buildings, water works, park lands, etc., as distinct from street
pavements, sewer improvements, etc., which, though valuable, are not what might be termed salable assets.
For instance, in answer to the criticism that the debts of
New York City were mounting up very rapidly and that
large amounts of the money were unwisely spent, my
firm had occasion in 1910 to make a very careful analysis of this point, one of the most striking results of
which was to show that the salable assets of the city
were over $1.000,000,000, a sum much greater than the
total bonded debt.
These points are only a few of the many which, upon
a careful study, would convince you that municipal extra vagance, which has certainly existed in recent years
and which can be depended upon to go hand-in-hand
with prosperous times, has been more than kept pace
with by consers ative limitations, and that there has
never been a time when municipal bonds selected with
due care have been more sound.
We now come to corporate securities, the obligations
of railroad and other public utility companies. The ultimate security of this group is. as you know, the earning
power of the obligor corporations. Of this group railroad bonds are the most largely held by Savings Banks,
and in view of recent developments demand particular
attention.
It is a current impression that Savings Bank holdings
of railroad bonds are growing smaller. This impression
probably has its basis rather in the recent unfavorable
attitude toward railroad securities than to the facts of
the case. Taking the figures of the entire country, one
finds that the holdings of railroad bonds by Savings
Banks have increased in the last four years in the
amount of over $50.000,000. Four years ago railroad
holdings comprised 52 per cent, of the total bond holdings; they now comprise 49 per cent. Looking into those
States where Savings Bank investment requirements are
closely restricted, one finds that in New York, for example, the railroad holdings now total about $274,000,000,
or 36 per cent, of all bonds held, as against $250,000,000,

166

BANKERS' CONVENTION.

or 37 per cent. of all bonds held four years ago. While, ship upon the ratio between the funded debt and the captherefore, actual railroad holdings have increased, the
ital stock. Another excellent provision in some of the
amount, relatively speaking, shows a slight decline. A
recent mortgages is that, after a certain amount of bonds
more significant decline has been in the market value,
has been issued, additional bonds may be issued only for
and this has been precipitated in the past four years. actual additions to the property and for less than their
The market value of the total bond holdings of every
cash cost. This is in my opinion a thoroughly wholecharacter of New York Savings Banks four years ago
some development in the field of railroad financing. It
was $5,000,000 below,the par value. At the first of this
has been the privilege of the house with which I am
year it was $41,000,000 below.
associated to have been largely identified with the early
I may not go here into the manifold factors that have
financing Of public utility corporations of this and other
governed the railroad situation. There are few probcountries. In drawing up the mortgages of many of
lems which illustrate so practically as does this one the
these corporations we insisted on provisions similar to
dictum that "A little knowledge is a dangerous thing."
those which are now being adopted by the railroads.
Those whose work lies in the railroad field—be it in the
Years have given time to test and prove that they form
nature of regulation or of operation or of financing—
genuine safeguards for the investor.
have to do with the largest single industry in the United
I remarked before that Savings Bank holdings, includStates, an industry that represents a capitalization of ing their extensive holdings of railroad bonds, show an
$20,000,000,C00, or more than one-sixth of the nation's
Increasing shrinkage of their market value. In New
entire wealth. More significant perhaps than the size
York State this shrinkage in value has amounted in the
and importance to which the railroad industry has grown
last four years to $36,000,000. The general causes are
Is the fact that its size and importance is still growing, fairly obvious, I think, although one particular phase of
and that by its nature its demands upon capital must
the situation as applied to railroad bonds may be claricontinue. For railroad property is normally and essenfied by a résumé of the history of Savings Bank holdings
tially property in -motion. We see reports of the many
of this class of security.
millions invested in right-of-way, in structures and
The admission in a large way of such securities to
bridges, in equipment and in terminals. We learn of
Savings Banks is comparatively recent. It came in that
the great tonnage capacity of thodern freight cars and
era of seemingly great prosperity that followed the dethe wonderful speed of passenger trains. All these we
pression of the first half of the decade, 1890 to 1900.
may understand, but more important to understand is
The period was one when money was easy and plentiful.
the financial significance of this aggregate motion, of
Beginning with the fall of 1896 and continuing throughthis incessant wear and tear going on daily through the
out 1897 and 1898, the entire securitY market was strong
year and decade without beginning and without end. and prices showed a steady advance. Coincident with
The more vital the railroad has grown to our industhis upward movement legislation became active in entrial life the higher have been the demands upon its
larging the list of bonds available for Savings Bank inefficiency. This is the clue to the continuity of its devestment. In New York State this admission to the
mands upon capital—demands which average in this
eligible list of Savings Bank investment of the bonds of
country alone around $1,000,000,000 every year. In dealvarious important Eastern communities was followed by
ing with the American railroad industry one deals not an agitation for the admission of certain railroad bonds.
only with immense figures, but with immense possibiliAdmission of these bonds was urged by prominent Savties.
ings Bank men who claimed that the enormous increase
So you must see, gentlemen, that your interest in railIn deposits and the narrow field allowed for their inroad obligations made in the past is linked, of necessity, vestment was rapidly forcing them into an embarrassing
with the future. That this interest be intelligent is paraposition. Accordingly, the Legislature passed a bill in
the early part of 1898 admitting a limited number of
mount. For I repeat in this situation "a little knowlrails to the eligible class. The list was enlarged later
edge is a dangerous thing." Those whose influence is
in 1898, and slight additional changes were made in
situation must have gendeterminative in the railroad
almost every subsequent year up to 1905. The point
uine knowledge. I will not undertake any comment as
should be noted that. in admitting these railroad bonds,
to whether those whose sphere is regulation have this
there was no comprehensive outline of requirements, but
requisite knowledge or as to whether the general pubnaturally, to possess this knowledge itself, Instead the enumeration of a certain few railroads, whose
lic, not able,
bonds were made legal. The results of the legislation
Is alive to the necessity of its governmental representare doubtless fairly fresh in your memory. Under the
atives acquiring and acting in accord with that knowlnatural stimulation of prosperous monetary and indusedge. Nor IA there opportunity here to go into the effitrial conditions and particularly under the artificial stimciency which is being developed by those whose sphere is
ulation of the new law's limitations, the prices of these
operating railroads. I may say, however, that a carelegal rails rose until they reached an abnormal level.
ful study of the annual reports of our principal rail/
1
2
The favored railroads were able to issue 3 per cent.
roads for a period of years will suggest to you, if it does
bonds, which sold, as you know, at par or better. Some
not completely inform you, as to the progress of operatof you may now look back with regret at the time when
ing efficiency in this country. Of more immediate inter/
1
2
New York Central 3 s sold as they did in 1899, and for
est is, perhaps, the progress that is being made in the
a while later on a 3.15 per cent. basis. The time for
railroads, in the elaboration of safeguards
financing of
regret was properly then. For the levels reached were
that are being built around new bond issues. Mortgages
artificial—abnormal. In the growing holdings of railcare. It is being more readare being drawn with more
recognized that a greater percentage of earnings must road bonds there seemed no reflection of an appreciation
ily
be put back into the property. An example of this was of this truth.
In 1905, at a high water mark of prosperity, the New
one of the larger railway loans'of last spring. By its
York law was revised. Requirements, not roads, were
terms the company had to divert from earnings for the
specified. It was a step in the right direction, but it
next five years $17,000,000, which amount has to go back
was a step taken at the brow, not at the foot of the hill.
Into the property. This tendency toward more conservaFor following the immediate widening of the legal railtive financing has an immediate bearing on railroad
road bond group there came a cycle of depression, which
bonds that are legal for Savings Banks—strengthening
has continued, with slight variations, up to the present.
as it does the bondholders' equity in the property and
And as we saw in the preceding period, a rise in legal
security, a road's earning
increasing the fundamental
rails occasioned both by general prosperity and by the
power. Similarly some of the new so-called blanket
artificial nature of the Savings Bank Law, we now see
mortgages of the large systems impose definite relation-

SAVINGS BANK SECTION.
the fall in these legal rails, not merely in conformity
with general conditions, but due also to the greatly expanded opportunities for Savings Bank investment: That
is, the supply of Savings Bank bonds had increased—the
demand had decreased. So in analyzing the conspicuous
price decline of legal railroad bonds, a fact to be borne
prominently in mind is that a large percentage of the
loss is explainable in the abnormal and artificially high
level to which prices had previously risen.
It must not be assumed from the foregoing that I
would decry enlarging the Savings .Bank eligible list.
In so far as such enlargement is based on sound economic facts, it is a wise measure. In times of prosperity
the investment of Savings Bank funds tends to increase
the prices of the eligible bonds. It, therefore, is advisable to have the list of available investments so large
that the investment demand from the Savings Banks will
not tend to increase the prices of those bonds to a point
largely beyond their value as general market investments. The possible future necessity for liquidating
part of the assets so invested should be remembered, for,
after all, one of the prime advantages of bonds over other
forms of Savings Bank investments is their marketability.
When it becomes necessary for a comparatively few
Savings Banks to seek funds in this way it will be found
that other Savings Banks are subject to the same influences, and it then becomes highly important to have
a market for such securities outside of the Savings
Banks themselves. The threatened withdrawal of large
Savings Bank deposits some sixty or ninety days ago
brought this very point to the fore, and the fact that
such large withdrawals did not materialize did not lessen the importance of being prepared for such an emergency.
In this connection it occurs to me to touch upon a
practise which works to the detriment of the Savings
Banks while appearing to confer an advantage. I refer
to the exemption of home securities, whether municipal
or corporate, from the provisions of the ordinary Savings
Bank tax. This is present in Connecticut, Massachusetts
and Maine, and I believe in a number of other States
where Savings Bank investments are closely restricted.
The natural tendency is to advance the price of home
bonds and to narrow their market. The result is that
in cases of liquidation of such volume that the home
market cannot readily absorb them, they are forced outside for sale in markets where the exemption from tax
has no practical value. It would seem to me to be much
more preferable that home municipalities and corporations should pay whatever the actual cost of such money
Is than to have part of that cost defrayed out of a decrease in the volume of taxes collected.
The eligible list has been amplified recently in many
of the States, and generally speaking, for the better. In
1913 New Jersey added bonds of railroads which cover
Important terminal and dock properties. Vermont has
admitted railroad mortgage bonds and Connecticut and
Rhode Island have admitted certain equipment issues.
This last development merits extension, for the experience of more than thirty years has demonstrated that
equipment bonds, if properly issued and safeguarded, are
among the safest, most conservative and desirable forms
of investment. Public records show that during the receivership era, from 1893 to 1896, when railroads having
outstanding over $60,000,000 equipment securities were
placed in the hands of receivers, holders of equipment
bonds suffered no loss, this being true even of those roads
which defaulted upon their first mortgage bonds. If issued under definitely established restrictions and secured
upon standard rolling stock, equipment bonds have
throughout their tenure of life a claim upon something
which is good for the principal and interest, even if it
comes down to a matter of selling the rolling stock at its
scrap value.
To my mind, however, one of the most significant de-

167

velopments in Savings Bank bond requirements is the
recognition of public service corporation bonds. Telephone and street railway bonds have been legal for some
time in Connecticut, Massachusetts, Rhode Island and
several other States. While these two types of public
utilities are undoubtedly excellent additions, there is
warrant for the assertion that they do not comprise
exclusively the best in the public utility field. Electric
railway securities, for example, are now, generally speaking, less in favor with the investing public than any
other class of public utility bonds. This is due both to
the public's memory of the over-estimates of value indulged in while financing the consolidations of the traction systems in many of our large cities, and to the fact
that the hazards of the street railway business are
greater than those of practically any other public utility.
We cannot go into these hazards in detail, but the following enumeration may suffice; the rapid depreciation
and obsolescence of property, labor troubles, municipal
interference, damage suits and a growing tendency toward rate reduction, which does not have the compensating advantage found in nearly all other public utility
lines of increasing the business. The principal other
classes of public service corporations are gas, electric
light and power companies, including the increasingly
important hydro-electric developments. The best representatives of these public utilities furnish a most stable
basis of security. Practically unaffected by industrial
depression and practically free from the ill effects of
competition by the fact of their being natural monopolies,
the leading public utilities of this country have grown
rapidly in favor with conservative investors during the
last ten years. Banks, other than saving institutions, as
well as private investors, are now among the largest purchasers of the bonds of such companies. Their admission into the Savings Bank eligibility class is, therefore,
a natural step. Following their admission, a new and
equally excellent step has been taken. This is the removal of the intra-state limitations, Savings Banks in
some States being allowed to invest in the bonds of any
companies which meet certain requirements, as opposed
to the old limitation which restricted their investment
to companies operating in the Savings Banks' home
States. Here, again, there was formerly an artificial .
market created. A noteworthy instance of this recent
development is the new Rhode Island law. Its restrictions are conservative, yet are applicable to a broad field.
As a result, Rhode Island Savings Banks are enabled to
pick the best the market provides—and the market is
country wide in its scope.
It may be gathered from certain things I have said
that I think the prosperous future of Savings Banks, so
far as their investments are concerned, depends upon
more closely conditioned Savings Bank laws. In part,
yes. Completely, no. I would like nothing better than
to analyze for you the details of some of these elaborate
laws and point out to you where many pounds of prevention fail to effect even an ounce of cure. But I will
be able at this time merely to pick out at random some
weak links in the guardian chain your laws have welded
that will suggest, if nothing more, the fundamental weakness there is in all such chains. Gentlemen, general rules
depend upon generalities—and generalities play an uncertain rOle in the financial world. For that world consists of a myriad of complex, yet very concrete, details,
upon which one must specialize, not generalize. Those
of you who are familiar with the New York law, for
instance, will recall that Savings Banks may invest in
the first or refunding mortgage bonds of any railroad
which, among other things, has paid dividends of 4 per
cent, for the preceding five years. A similar provision
occurs in both the Connecticut and Massachusetts law.
At first glance it is the acme of conservatism. Now, gentlemen, surely experience has taught you that almost
every good railroad that has "gone on the rocks" as

168

BANKERS' CONVENTION.

they say, has precipitated its own trouble by paying
dividends when foresight and conservatism demanded
that the money go back into the property. To enumerate examples would be wearing to you—there are too
many. Far more important than the amount of money
a railroad pays as dividends is the amount it has left
over after paying them. The law says "Earned and
paid." What is meant by earned? If any road cares to
skimp its maintenance enough, its report will show its
dividend earned. Here we have a supreme example of
the dangers of generalities. When the law says
"earned," it says, from a rigidly conservative standpoint,
practically nothing. The Rhode Island law does not impose the dividend requirements, and to my mind this
apparent laxity is a source of the law's strength. I cannot go into that law in detail, but I think it would repay
you to study it. Many of its provisions are distinctly
interesting.
The shortcomings in many of the Savings Bank laws
are not confined to railroad bond requirements. There
is distinct room for improvement in the municipal sphere.
A conspicuous case is that the present law of New York
State imposes restrictions which shut out from the eligibility class such bonds as those of Richmond and Atlanta,
cities whose physical and financial position is and has
been for a great many years above any unfavorable
criticism. On the other hand, cities such as Dallas,
San Antonio, Kansas City, Kansas, Peoria, Oakland,
Tacoma and many others whose size and general importance are certainly not greater, are eligible, and while
I am not disparaging the merits of the obligations of
these communities, it does not seem to the best interests
of the Savings Banks in New York State that they should
not have an opportunity of adding to their list of investments such desirable bonds as those of this anti similar
cities in this portion of the country.
Last year when the State of Connecticut again revised
its Savings Bank Law, there was shown a commendable
disposition to seek practical, and I may say expert, advice. The consequence was that the original draft of
that law was so changed as to avoid many questions
which were sure to have arisen; in fact, many of the
suggestions made by investment bankers to the Savings
• Bank Commissioners and the committees representing
the Savings Banks themselves were born of experiences
which grew out of the law passed in New York State
some years before. The Connecticut law has another
good feature, in that it calls upon the bank commissioners to furnish a list of securities which are eligible
under the law. This follows the practise of the bank
commissioners in the State of Massachusetts and is a
radical departure from the practise in New York State.
where, as a great many of you know, the Banking Department and the Attorney-General's Department, due to
the press of work, have required that a Savings Bank
shall actually make a purchase of securities before asking the Department to rule upon the question as to
whether or not they are eligible. I can appreciate that
It is hardly practicable to allow any outsider to bring up
questions at will with the Banking Department and
through them with the Attorney-General's Department;
but, on the other hand, it certainly seems reasonable that
the banks should have the advantage of official advice

on this subject before being required to commit themselves to an investment. The actual result of the present
practise is, in many cases, that a bank will refrain from
making a profitable and desirable investment because of
the necessity of handling the matter in this way.
As a constructive suggestion it has occurred to me
that a committee composed of representatives of the
Savings Bank Department, a representative of the Attorney-General's Department and one or more representatives of the Savings Bank Association, would form a
desirable and practical means of handling this problem.
The duty of this committee would be to consult with the
authorities and to sift all of the information at band so
as to put the case up to the officials in such shape that
they could intelligently and readily pass upon the questions involved, knowing that all of the features bearing
on the situation had been presented at one time. Such a
committee would find active co-operation with any reliable investment banker, and for that very reason its
work would not be as difficult as might seem at first
thought.
It has been recognized by individual investors who
have been most successful that a first essential in the
making of any investment is the co-operation and advice
of investment bankers. Investors who recognize this do
so because they know that the leading investment houses
of this country have at their disposal not only more information regarding the security in question than any
individual can possibly have, but also an organization
that has had years of training in interpreting correctly
such information. There are investment houses in the
country which can truthfully lay claim to a record of
never losing a penny of principal and interest for clients
who have invested in bonds which these houses have investigated, surrounded with a series of comprehensive
safeguards and purchased with their own funds before
offering them to investors. Such firms, if for no other
reason than that of enlightened self-interest, regard
themselves as sponsors for the bonds they offer, and their
service to clients does not end until final payment of
principal and interest has been made.
Now, gentlemen, I think you will agree that Savings
Banks are in a position quite similar to private investors.
True, those whose choice determines Savings Bank inyestments are usually men of affairs, men above the
average in business intelligence and men who are required to direct the investment of funds far larger than
is the case with private investors. But this alters not
one whit, but rather strengthens my conviction that the
position of Savings Banks coincides in all practical details with that of private investors. And your position,
gentlemen, demands that the best information, the best
advice and the best investment bankers co-operate with
you at all times. Only then will your investments tend
more consistently toward that ideal of Savings Bank
bonds—unquestioned safety of the funds which are in
your charge. I feel very strongly that such co-operation
Is essential—and I feel, too, that the value of such cooperation is being more thoroughly appreciated on all
And I am wondering if I may not take it
sides.
that a present evidence of the tendency is the privilege
that has been extended to me of speaking with you
to-day.

'SAVINGS BANK SECTION.

Recent Amendments to the Savings Bank Law of New York
State and the Reasons for Such Amendments.
BY Eu-zorr C. MeDouoAL, President, Bank of Buffalo.

• On June 23, 1913, under authority of a special act of
the Legislature, the Honorable George C. Van Tuyl, Jr.,
Superintendent of Banks, appointed a commission to revise the banking laws of the State of New York, the
result of its work to be reported to the next State Legislature.
The main objects of revision were: the simplification
and codification of such parts of the existing banking law
as experience had proved satisfactory, and the making
of alterations and amendments where clearly necessary.
The new statute makes the law clear and definite in
many instances where it has heretofore been doubtful
and ambiguous.
The first sentence of the act is as follows: "The Superintendent of Banks is hereby authorized to appoint a
commission of five or more persons having a technical
knowledge of the banking law and a practical knowledge
of banking methods, to prepare and submit to the Legislature a complete revision of the banking law of this
State, adapted to present banking conditions and based
upon the experience of the banking department in the
work of supervision and in the liquidation of failed institutions."
The membership of the commission embraced lawyers,
business men not bank officers, and officers of commercial
banks, trust companies and savings banks. The Superintendent of Banks took a personal interest in the work
of the commission, being in attendance at practically all
of the meetings of the full commission. He also relieved
from his regular duties and assigned as counsel to the
commission Mr. George I. Skinner, First Deputy Superintendent of Banks, with about twenty years' experience
in the Banking Department, and, very fortunately, a
lawyer. The commission appointed the following subcommittees: Banks, Trust Companies, Savings Banks, Private Bankers, Domestic Investment Companies and Small
Loans, Liquidation and Penal Law. The First Deputy
Superintendent of Banks attended the meetings of practically all of these sub-committees. One of the chief advantages of the make-up of the commission was that
every section of the law, both old and new, was thoroughly discussed and argued upon from the standpoint
of the banker, the business man who is not a banker, and
the lawyer. The fact that the First Deputy Superintendent was a lawyer and also had practical experience
in the Banking Department made his assistance invaluable. He could answer the points of bankers from a
banker's standpoint. Many suggestions were made by
members of the commission not bankers, which bankers
knew were not practicable; but, in many cases, although
they might advance their opinions to that effect, and
although their opinions might be respected by lawyers
and business men, a mere opinion might not be absolutely
convincing. He frequently could cite, out of his own
experience, instances where the very suggestions had
been tried, and could tell just how they had worked out
in actual practice. He would say: "What you propose
was tried in such and such a bank at such and such a
time, and the results were so and so." Such statements
of actual experience were convincing. The commission
was able to do its work in a most practical way and to
avoid theoretical pitfalls. Because of the presentment
and thorough discussion of valuable ideas respecting the
different points of view of different business interests,

because the members of the commission had to be
"shown" to their own satisfaction the practical working of any proposed changes in the law before recording
themselves in favor, because fallacies and mistakes
could, with great difficulty, escape the scrutiny of so
many different classes of minds, it is a fact that, although months have elapsed since the passage of
the
law, it has not been criticised except by those who, for
the public good, were subjected to additional restrictions.
The commission found that the banking laws of the
State of New York, so far as they related to commercial
banks, trust companies and savings banks, had been
proven by experience to be in the main good. Comparatively little new matter was inserted in .these articles.
The most important work of the commission was done
by the Committee on Private Bankers, Domestic Investment Companies and Small Loans. The absolute necessity of protection for small depositors, many of whom
could not discriminate between banks under the supervision of the Banking Department and private bankers
not under the supervision of the Banking Department,
called for immediate action. The subject was a most
complicated one, as care had to be taken not to interfere
with the operations of large private bankers who do not
take savings deposits and whose services are absolutely
necessary for the promotion of large enterprises and the
development of this country, and, at the same time, to
make the laws so broad that under no technical loophole
could private bankers taking small deposits avoid supervision. The Henry Siegel & Company failure in New
York emphasized the danger of unsupervised private
banking. While most of the members of the commission
were just as well aware of these dangers before the
Siegel failure as after, it is doubtful whether the private
banking section of our bill could have passed if it had not
been for the public sentiment aroused by the Siegel failure. Even then the opposition of private bankers in the
Legislature was the strongest opposition with which the
commission had to contend. Some of the private bankers
knew that if they came under the supervision of the
Banking Department they would be found to be insolvent.
Their opposition was desperate. Several of them, in New
York City, who fought the new banking law, were closed
within a month or two after it became effective and the
Superintendent of Banks was able to learn their true
condition, which condition averaged worse than the commission ever openly dared declare.
. I am not here to-day to speak of the general work of
the commission. I have been asked to speak upon the
changes in the law as such changes affect Savings Banks
and upon the reasons for such changes. I have selected
the more important points, thinking it better to treat
them clearly than to treat the whole subject inadequately.
At the outset, I wish to disclaim any assumption on
my part as speaking for the commission. Many of
the
members of the cOmmission had different reasons for favoring the same measures. When I state why certain
changes were made, I am to be understood as stating my
conception of the preponderating reasons of the commission as a whole. Such conception will be according
to
my best judgment, framed during the sessions of
the
commission.
I am not entering into much detail concerning
the pro-

170

BANKERS' CONVENTION.

visions for incorporating and organization of Savings
Banks. The old law provided that the number of trustees might be thirteen or more. There was no maximum
limit. The new law provides that there shall be not less
than nine nor more than thirty. The minimum was reduced from thirteen to nine, and the quorum from seven
to five, because of anticipated difficulty in selecting
.
enough able trustees in case interlocking directorates
were prohibited. The number was limited to thirty because experience had taught that, in a board of unusually
large numbers, the responsibility is so divided that no
one trustee feels his responsibility very keenly unless he
happens to be one of a small executive committee to
which, in such cases, the main responsibility and initiative usually are delegated, or, if not specifically so delegated, gradually assumed.
Perhaps the most important change in the law is to be
found in the recognition by the Legislature of the necessity of a fund, whether it be called "guaranty fund," as
It is in the new act, or "surplus fund," devoted to the
protection of depositors. Under the old law there were
provisions limiting the amount of the surplus fund which
Savings Banks might accumulate, but the law was entirely devoid of any provision requiring a Savings Bank
to have any such fund, and no credit can be given to the
law, as it existed prior to this revision, for the fact that
the Savings Banks of New York State had built up large
surplus funds to protect their depositors. It is true that
some of these requirements as to guaranty funds are not
very strong, and that for the good of the Savings Banks,
as a whole, there might well be a further increase in the
percentage of earnings which should be set aside from
year to year. Nevertheless, the great gain made in the
new banking law is the recognition by the Legislature
that some guaranty fund or surplus is absolutely necessary, and that a guaranty fund of 10 per cent. of the
amount due its depositors is the minimum which should
be required of a Savings Bank. I shall discuss the details in their proper place.
Section 234 of the new law requires that the incorporators of a new Savings Bank shall deposit, in cash, as
an initial guaranty fund, at least $5,000, and that they
"shall also enter into such agreement or undertaking
with the Superintendent of Banks as he may require, to
make such further contributions in cash to the guaranty
fund of such Savings Bank as may be necessary to mainthin the solvency of the Savings Bank and to render it
safe for it to continue business." It is also provided that
the Superintendent may, in his discretion, require a
surety bond in connection with this agreement.
I presume that many of you know that, in the State of
New York, Savings Banks are mutual associations the
starting of which requires the paying in of no capital'
stock. All of the assets of New York State Savings
Banks are owned by the depositors. Unless some such
provision were made, a Savings Bank could start without either capital or surplus. You will remember that,
in the new law, the words "guaranty fund" are used in
place of the old word "surplus."
Section 235 also provides that the incorporators shall
deposit in cash an additional sum of $5,000 for an expense fund, and enter into an agreement with the Superintendent of Banks to make such further contributions
as may be necessary, he to have the power, in his discretion, to require a surety bond in connection with
such agreement.
Section 236 also provides that interest shall be paid
guaranty
to the contributors upon the expense and
depositors, and
funds at the same rate as is paid to
bank warrant
that, when the earnings of a savings
the
such action, the contributors shall be reimbursed
in whole, or in part pro
amount of their contributions
transrata. These contributions are represented by
assigned and bequeathed
ferable certificates that may be
in the same manner as other personal property. The
main reason for these amendments is proper protection

of depositors, and incidentally assurance against the
springing up of an unnecessary number of weak Savings Banks formed by irresponsible promoters. It was
argued by a number of the members of the Commission
that incorporators of new Savings Banks would not comply with such conditions, and that the result of the law
would be practically to prohibit the organization of new
Savings Banks. The First Deputy Superintendent of
the Banking Department answered this by saying that
incorporators had been doing this very thing in a number of cases because the Superintendent of Banks had
required it, and that those starting a Savings Bank
were just as likely to contribute their cash toward such
enterprises as toward other philanthropic enterprises.
He also stated that the practise had worked out well
during several years of experiment, and that the Department thought that the discretionary power which
the Superintendent had assumed with such good result
should be authorized by statute. These are the main reasons for these provisions.
Investments are treated by the Commission very conservatively. Very few changes, and practically no important changes, were made in the old law. The commission itself felt that it would be distinctly to the
advantage of the Savings Banks of New York State
that they should be given permission to invest in equipment notes of good railroads and other short-term securities of a like nature, in order that they might not be
compelled to invest so large a proportion of their assets
in long-term bonds which carry with them such a large
risk of depreciation in financial crises. Savings Bank
men present have only to ask themselves what they
could sell their gilt-edged bonds for to-day were the
Stock Exchange opened and the bonds thrown on the
market, as compared with the price at which they are
carried on their books, to realize the force of this suggestion. While I am not absolutely positive on this
point, I am inclined to believe that this new provision
was left out of the Savings Bank law at the request of
many of the conservative Savings Bank men of New
York State who thought it not for the best interests
of their depositors. Personally, I do not agree with this
opinion, but my experience is only that of a commercial
banker. Had I the valuable Savings Bank experience of
the gentlemen who advised against this measure,I might
have thought as they did.
One of the anomalies of the old law was that there
were many securities in which Savings Banks were allowed to invest, but which they could not take as collateral security for loans. It is perfectly plain that this
was absurd. The new law permits Savings Banks to
take as collateral for loans any securities in which, by
law, they are entitled to invest.
Section 53 provides as follows:
"On or before the first day of June and the first
day of December in each year, the Superintendent
shall furnish to each Savings Bank a list, giving
with such detail as he may deem necessary the
estimated market values, either specifically or by
classes, at which the bonds held by it, which are
legal investments for Savings Banks, shall be reported at the date of its next semi-annual report.
shall
In making such valuations the Superintendent sales
be governed so far as is practicable by actual reof such bonds as ascertained by him, or as
ported by the various stock exchanges and financial
papers during the preceding five months, and by
general business conditions."
These lists will be of great assistance to all, and especially to trustees of Savings Banks in small cities and
villages. Trustees may safely follow them, and, at the
same time, be relieved from personal liability in doing
so.
This provision enables the Superintendent of Banks
to make fair valuations of the investments of Savings
Banks at all times, and compels the Savings Banks to
accept such valuations without any quibbling as to socalled investment values based upon the cost of the se-

SAVINGS BANK SECTION.
curities, and not upon value in any sense of the word.
It also makes the market values, used by all Savings
Banks, on the same securities, absolutely uniform, which
was practically impossible under the old law, even if
every Savings Bank had honestly done its best to use the
true market values.
There is one new provision in Section 239, subdivision
9-c, which reads as follows:
"The trustees of a Savings Bank shall not be
held liable for investing in State or Municipal bonds
named in the list furnished by the Superintendent of
Banks pursuant to section 52 of article 2 of this
chapter, or in any railroad bonds mentioned in
such list, which have been legally issued and properly executed, unless such Savings Bank shall have
been notified by the Superintendent of Banks that,
In his judgment, such bonds do not conform or have
ceased to conform to the provisions of this section."
Section 241 provides that there shall be delivered to
a Savings Bank a complete abstract of title to such real
estate, or a policy of title insurance of a title company.
I take it for granted that this is simply legalizing what
has been the practise of good Savings Banks.
Subdivision 3, Section 265, provides that any attorney
for a Savings Bank, although he be a trustee thereof,
may receive a reasonable compensation for professional
services, anl also that he "may collect of the borrower
and retain for his own use the usual fees for such services, excepting any commissions as broker or on account
of placing or accepting such mortgage loans."
It was thought there could be no good reason why an
attorney,should not be paid by a Savings Bank for professional services even if he were a trustee. It was
thought that explicit permission for open and aboveboard compensation, which naturally excludes what is
not specifically permitted, was much better than indirect
methods.
I still question whether the law should not have gone
further and fixed a uniform rate of compensation based
on percentages. It might be urged by Savings Bank attorneys that no two services, covering equal sums, are of
equal value, but an average rate probably could be devised that would be fair to all.
Section 248 contains the following provisions:
"The Savings Bank may at any time by a resolution of its Board of Trustees, require a notice of
sixty days before repaying deposits, in which event
no deposit shall be due or payable until sixty days
after notice of intention to withdraw the same shall
have been personally given by the depositor.
"Nothing herein contained, however, shall be construed as impairing contracts heretofore made between Savings Banks and their depositors as to notice of withdrawal, or as prohibiting any Savings
Bank from making payments of deposits before the
expiration of said sixty-day notice.
"But no Savings Bank shall hereafter agree with
its depositors in advance to waive said sixty days'
notice, nor shall it in the case of deposits hereafter
made require a longer notice than the sixty days
aforesaid."
Prior to the enactment of this section, the whole matter of requiring notice, and the length of the notice, was
settled by the by-laws of each bank, so that some banks
were in position, under the old law, to require sixty
days' notice, some were limited to requiring thirty days'
notice, others could require ninety days' notice, all of
which led to confusion at times when notices were required, that was thought undesirable. The present section regulates the whole matter and makes sixty days
the standard.
It also provides that a Savings Bank, taking proper
precautions, may pay to the apparent heirs of a depositor
who dies leaving no will, and for whose estate
no executor or administrator is appointed, any
balance due not exceeding $250.
Every Savings
Bank officer of experience knows that there are many
cases in which the expense of court proceedings and the
appointment of executors or administrators would eat

171

up the greater part of the small balances left by deceased
depositors. Some Savings Bank officers have illegally
taken the risk of making such payments. The present
statute legalizes them and protects Savings Bank officers
in making them.
Section 249, referring to joint deposits, payable to
either or to the survivor, additionally provides:
"The making of the deposit in such form shall,
in the absence of fraud or undue influence, be conclusive evidence, in any action or proceeding to
which either such Savings Bank or the surviving
depositor is a party, of the intention of both depositors to vest title to such deposit and the additions
thereto in such survivor."
This makes more certain the right of Savings Banks
to pay the survivor when the deposit was made payable
to two depositors jointly, or to the survivor in the ease
of the death of one of them.
Section 251 permits a Savings Bank to carry 20 per
cent, of the aggregate amount of the deposits uninvested
and in cash. Heretofore this amount was limited to 10
per cent.
It gives a wider discretion to the trustees of Savings
Banks as to the time at which deposits should be invested, by allowing them to retain uninvested a much
larger portion of the receipts. Under the former statute they were required to invest all but 10 per cent, of
the moneys received permanently, even though market
conditions were most unfavorable, instead of holding
the deposits until they could be advantageously invested.
One of the most important amendments is contained
in Section 255, which reads as follows:
"If at the close of any dividend period the guaranty fund of any Savings Bank be less than 10 per
centum of the amount due to depositors, there shall
be deducted from its net earnings for such period
and credited to its guaranty fund 5 per centum of
its net earnings during the year 1914; 6 per centum
during the year 1915; 7 per centum during the year
1916; 8 per centum during the year 1917; 9 per
centum during the year 1918; 10 per centum during
the year 1919, and 10 per centum during any year
thereafter in which a dividend shall be declared or
so much of such percentages as will not compel it
to reduce its dividends to depositors below the rate
of 3% per centum per annum. The amount of net
earnings remaining after such deduction for the
guaranty fund and its undivided profits shall be
available for the declaration of dividends for such
period.
"While the trustees of a Savings Bank are paying its expenses or any portion thereof, the amounts
to be credited to its guaranty fund shall be computed at the same percentages upon the total dividends credited to its depositors instead of upon its
net earnings."
There was considerable difference of opinion concerning the percentages which should be named in this section, some of the members thinking that the percentages
finally adopted were ridiculously low. The majority of
the commission thought that it was of great importance
to establish the principle that some sum must be set
aside regularly, and it was better to make a start in the
right direction even if the initial percentage was very
small and lower than what most banks habitually set
aside, that the start should be made and the percentage
gradually increased. The commission took into account
the probability that before the percentage of increase
had reached the maximum, gilt-edged bonds would have
recovered from their present depression and that it
would be as easy for a Savings Bank to set aside 10 per
centum during the year 1919 as to set aside 5 per centum
now.
Section 256, subdivision 6, provides as follows:
"The trustees of any Savings Bank whose undivided profits and guaranty fund, determined in the
manner prescribed in Section 253 of this article,
amount to more than 25 per centum of the amount
due its depositors, shall at least once in three years
divide equitably the accumulation beyond such 25
per centum as an extra dividend to depositors in

172

BANKERS' CONVENTION.

excess of the regular dividend authorized. A notice
posted conspicuously in a Savings Bank of a change
in the rate of dividend shall be equivalent to a personal notice."
The experience of the past ten years has proven that
the limit of 15 per cent. previously placed upon a Savings
Bank surplus above which it would be obliged to declare
extra dividends is not a sufficient margin of safety.
Under the new law, this guaranty fund is based upon
estimated market values. Under the old law, the amount
of the surplus, which was the equivalent of what we
now call the guaranty fund, was estimated on the market
value of securities only when the securities were below
par, otherwise upon the par value of the securities.
Section 258 provides:
"No Savings Bank shall hereafter put forth any
sign or notice or publish or circulate any advertisement or advertising literature upon which or in
which it shall 'be stated that such Savings Bank has
a surplus or guaranty fund in excess of its market
value surplus or guaranty fund as determined under
the provisions of this article, unless the nature of
the same be clearly made to appear."
This section was included because some Savings Banks
were using, for advertising purposes, valuations showing
surpluses much in excess of those allowed by the Banking Department. I cannot, however, conscientiously say
that this practise is confined to Savings Banks. I have
known a bank or a trust company to publish, as required
by law, in an obscure corner of a paper, its official
sworn report showing its proper surplus and then, the
next day, or the very same day, publish, for advertising
purposes, a statement based on book valuation and showing a much larger surplus.
Section 267 provides that a trustee of the Savings
Bank shall not—
(e) Direct or require a borrower of the Savings
Bank on mortgage to negotiate any policy of insurance on the mortgaged property through any particular insurance broker or brokers, or attempt to
divert to any particular insurance broker or brokers
the patronage of borrowers from the Savings Bank,
or refuse to accept any such insurance policy because
it was not negotiated through a particular insurance
broker or brokers."
This provision was included because Savings Bank
men of long experience told the commission that the
practise of using the influence of a Savings Bank official
to induce the party to whom it was making a loan to
place his insurance with some relative or friend of the
Savings Bank official, or some concern in which the official was interested, was not so uncommon as might be
supposed.
Section 267 also provides that a trustee of a Savings
Bank shall not
"(e) For himself or as agent or partner of another, directly or indirectly, borrow any of the
funds or deposits held by the Savings Bank, or become the owner of real property upon which the
Savings Bank holds a mortgage. A loan to or a
purchase by a corporation in which be is a stockholder to the amount or 15 per centum of the total
outstanding stock, or in which he and other trustees of the Savings Bank hold stock to the amount
of 25 per centum of the total outstanding stock,
shall be deemed a loan to or a purchase by such
trustee within the meaning of this section; except
when the loan to or purchase by such corporation
shall have occurred without the knowledge or
against his protest. A deposit in a bank shall not
be deemed a loan within the meaning of this section.
"This section shall not be construed to prohibit a
Savings Bank from making a loan to a religious
corporation, club, or other membership corporation
of which one or more trustees of such Savings
Bank may be members or officers, but in which they
have no financial interest, nor shall it be construed
to prohibit a Savings Bank from making loans to
or purchasing guaranteed mortgages from any stock
corporation, provided no trustee owns more than 15
corporaper centum of the capital stock of such
tion, and the total amount of such stock owned by
all the trustees of such Savings Bank is less than
25 per centum of such capital stock."

Under the old law it was provided that no officer or
trustee should have an interest in a loan made by the
Savings Bank. Under this section it had been held by
the Attorney General that a trustee of a church, who
was also a trustee of a Savings Bank, vacated his office
as trustee of the bank when the bank made a loan
to the church, even though it was made without the
trustee's knowing anything, about it. It was also held
that where a trustee of a Savings Bank was a stockholder in a corporation which subsequently purchased
a piece of real estate, upon which the Savings Bank held
a mortgage, that such trustee ipso facto vacated his
office as trustee. Section 267 is an effort to straighten
out these relations, so that a trustee will not vacate his
office if his interest in the mortgaged property is trivial
and negligible, and at the same time to protect the bank
from having a trustee have loans made in which he has
a genuine though indirect interest.
Section 271 is as follows:
"A Savings Bank may, in the discretion of its .
Board of Trustees, retire any officer, clerk or other
employee who shall have served the bank for a
period of thirty years or more, or who shall have
served the bank for a period of twenty years or
more, and shall have become physically or mentally
incapacitated for his position, or who shall have
served the bank for a period of twenty years or
more, and shall have attained the age of sixty
years. Any person retired from service pursuant
to this section may be paid in equal monthly incellstallments at the rate of not exceeding 2 per
turn of his average annual salary for the three years
immediately preceding his retirement, for each year
of service in the bank, but the maximum annual
amount paid shall in no case exceed 60 per centum
of such average annual salary."
It was represented that some Savings Banks had been
in the habit of pensioning employees; that there was a
question whether they had legal authority to do so;
that the practice was a proper one, and that it should
be legalized. Section 280 provides,
"Whenever the losses of any Savings Bank resulting from a depreciation in the value of its securities or otherwise exceed its undivided earnings
and guaranty fund so that the estimated value of
Its assets is less than the total amount due its
depositors, the Supreme Court may upon the petition
of the Savings Bank, approved by the Superintendent of Banks, order a reduction of the liability
to each depositor therein so as to divide the loss
equitably among its depositors. If thereafter the
Savings Bank shall realize from such assets a
greater amount than was fixed in the order of reduction, such excess shall be divided among the depositors whose accounts were reduced, but to the
extent of such reduction only."
As Savings Banks in New York State have no paid-in
capital but are mutual associations, it is perfectly proper
that, in case of necessity, any losses should be immediately adjusted by charging them against depositors pro
rata, thus restoring the legal solvency of the Savings
Bank. Section 487 provides—
"2. Any two Savings Banks located in a city of
the first class and in the same county or borough,
or any two or more Savings Banks located elsewhere in the State and in the same or adjoining
counties, are hereby authorized to merge as prescribed in succeeding sections of this article."
This permits the merger of Savings Banks, so that
weak institutions organized under the former system
can, in case of need, be taken over by strong institutions without loss to depositors, and provides a convenient, easy and economical method of liquidation,
should such liquidation become at any time necessary.
In the preparation of this paper, I have had valuable
assistance from Mr. George I. Skinner, First Deputy
Superintendent of the Banking Department of the State
of New York, and from Mr. Charles A. Miller, President of the Savings Bank of Utica, Utica, N. Y. By
their help I hope that all inaccuracies and omissions of
the more important points in the law have been avoided.

Committee and Officers' Reports Savings Bank
Section
Report of

Executive Committee of Savings Bank Section.

RICHMOND, VA., October 13, 1914.
Mr. President and Members of the Savings Bank Section:
Two meetings of your Executive Committee have been held
since our last annual meeting in Boston—one immediately following said annual meeting, and the other at Hot Springs, Va.,
on April 30th.
At the first of these meetings the honor of Chairman of this
Committee was conferred upon me, and the Secretary re-elected
for one year. It was also unanimously decided at this meeting
that, in accordance with the new Constitution of the American
Bankers' Association, the President and Vice-President should
represent the Savings Bank Section in the Executive Council,
and Messrs. Robinson and Knox, together with the Secretary,
were appointed a committee to represent the Section to the
authorities at Washington in regard to amendments to the
Postal Savings Act. How well they have performed their duty
will be told in their report. Also at this meeting the Secretary
was directed to publish a new book of printed forms, and money
was appropriated for that purpose. This has been done, and the
book is now in the hands of all subscribers.
At the second meeting a new set of By-laws was offered by
the Secretary, approved by our committee, and will be presented
for your approval to-day. Reports were also received from all
standing committees, indicating that our Section was playing
a large constructive part in tne work of the American Bankers'
Association ; and from the reports of these committees to-day
you will observe that they are still aggressively carrying forward their work.
Through the death of Clinton T. Rose of Syracuse, N. Y., and
the resignation of G. Ad. Blaffer of New Orleans. La., two vacancies were created in the Executive Committee, and to fill
these vacancies until this Convention, James Dinkins, of Gretna,
La., was elected in the place of Mr. Rose, whose term of office
expires in 1915, and George B. Edwards, of New York, was
elected in the place of Mr. 'Heifer, whose term of office expires
with this convention.
The matter of program for this convention was placed in
the hands of the officers of the Section.
Our office has been efficiently conducted along broad lines and
in the interest of the entire membership of the American Bankers' Association, and the detail incident to the work of all committees has been handled by our Secretary personally, ably assisted by his office assistant.
This has been the busiest year in the history of the Savings
Bank Section, and it is to be hoped that the aggressive constructive policy it has adopted will be continued.
This report must not close without expression, which we
hereby record, of our hearty appreciation of the untiring faithfulness, the notable efficiency and loyalty to Savings Bank principles with which our Secretary has performed the duties of
his office.
Respectfully submitted,
(Signed)
N. F. HAWLEY,
Chairman.

Report of the Secretary, Savings Bank Section, E. G.
McWilliam.
RICHMOND, VA., October 13, 1914.
Mr. President and Members of the Savings Bank Section:
The period since our last meeting iu Boston has been one of
the greatest activity in the Secretary's office since my incumbency of it. However, as this activity was largely a result of the detail incident to work conducted under direction
of our various committees, and will be reported by their respective chairmen, it hardly seems necessary or proper that further mention be made of it in this report.
I desire, however, to state that I believe the Savings Bank
Section to be a larger constructive force to-day than ever before, and that the possibilities for its future usefulness are
greater than ever.
The new by-laws which were adopted by our Executive Committee at Hot Springs, Va., last May have been placed before
you through the medium of our JOURNAL, and printed copies
have been handed you to-day in order that they may be intelligently acted upon at this meeting.
The matter of fittingly celebrating the centennial of Savings
Banks in this country in 1916 should not be lost sight of, and
I trust a special committee will be appointed to take up this
matter at least one year in advance.
Our financial statement, which is appended hereto, shows

that our appropriations for the past year's work was $9,500:
receipts from other sources, $19.28; and that our expenditures
for the year have been $9,197.10, leaving a credit balance of
$322.18. However, other expenses which were contracted for
but the bills for which were not presented prior to September
1, will largely offset that amount, although figured in this
year's expenses.
During the past year the Secretary's office has been used, to
a larger degree, than ever before by the banks in all parts of
the country desiring information upon all phases of savings
banking, and it is gratifying to note that many appreciative
letters have been received from such banks, indicating that
we have really been enabled to render them the kind of service they have a right to expect as members of the American
Bankers' Association, and which will continue to be our constant endeavor:
Respectfully submitted,
(Signed)
E. G. McWitt.tem,
Secretary.
SAVINGS BANK SECTION.

September 1, 1913, to August 31, 1914, inclusive:
.CUEDITS.

Appropriation
Sales of slides (Thrift publicity)

$9,500.00
19.2s
$9,519.2S

DISBURSEMENTS.

Salaries
$3,922.83
Postage, stationery aml printing, including Thrift
publicity
2,520.01
Rent
604.92
Proceedings, 1913
1,280.20
Executive Committee meetings
313.91
Traveling expenses
200.80
Convention expenses
217.69
Express
15.19
Telephone and telegraph
13.30
Typewriter inspection
9.00
Picture frames
4.75
Sundries
24.50 $9,197.10
Credit balance

$322.18

Report of the Methods and Systems Committee.
RICHMOND, VA., October 13th, 1914.
Mr. Chairman and Gentlemen:—
While in response to many requests, which have been especially numerous since the passage of the Federal Reserve Act,
we have been enabled through our efforts to furnish valuable
information to a large number of banks throughout the country in reference to methods and systems to be employed in savings banks and departments, our principal efforts have been devoted toward steadily pushing forward tile Thrift Campaign
which was first suggested by our Secretary somewhat over two
years ago, and we are pleased to report that our efforts are
beginning to produce definite results.
For instance, in the matter of school savings banks, after
a year of continuous effort upon the part of our vice-president
for Illinois, Mr. Joseph R. Noel, President North West State
Bank, Chicago the Board of Education of that city on March
23d approved the school savings system as presented by Mr.
Noel and authorized its adoption by school principals in their
respective schools. In New York City about the same time, a
favorable report was rendered by a sub-committee of the Board
of Education to that body, and it would seem that at last all
impediments had been removed to the early adoption of the
school savings system, as a system, in that city. Through the
efforts of Mr. Robinson, our Secretary, together with Mr. Robinson, Mr. Bother, our vice-president for Maryland, and other
Baltimore bankers, appeared before a sub-committee of the
Board of Education in Baltimore on January 20th, and presented the matter of school savings banks to that body. We
feel that the adoption of the system by these three cities will
give the school savings system a great impetus throughout the
country.
In North Dakota the State Bankers Associadon has
entered
into an active campaign for the adoption of the school
savings
system throughout the state and we have forwarded
to the
energetic Secretary of that Association nearly one
thousand
copies of our school savings bank pamphlet, for all of
which
there was a demand. In Connecticut, the educational
authorities of the state have become interested and we
earnestly hope
that other state associations may be moved to take up
this work.
The school savings bank has been adopted in
many other

174

BANKERS' CONVENTION.

We feel that at last we may report decided progress in every
small communities since our last report, and the demand for
direction and trust that our efforts meet with your approval.
our school savings bank pamphlet has been so large that we
Respectfully submitted,
were obliged to print a new and more complete edition of five
V. A. DERSNER,
thousand copies.
Chairman.
In order that accurate statistics of the school savings system throughout the United States may be obtained, our Secretary arranged with the office of the Comptroller of the CurReport of Membership Committee.
rency at Washington to send an inquiry to all banks, requestRica mom), VA., October 13. 1914.
ing the names of schools carrying accounts made up of school
Mr. Chairman and Gentlemen:
savings funds. The replies to this inquiry have been forwarded
to our Secretary, who will address each school for statistics
The interval since our Boston Convention having been one of
which, when compiled, will be shared with the Comptroller's
readjustment in the membership in the Sections, our net result
office.
shows a considerable loss, as compared with last year, although
upon analysis it will be found that had it not been for the
The Thrift Talks which are issued monthly from our office
loss entailed through the strict interpretation of the new Confor weekly use in newspapers and other publications are daily
stitution, we would have shown a very satisfactory gain, as
increasing in popularity with both bankers and publishers and
we are constantly enrolling new members.
we are now mailing seven hundred sets of these talks each
Sec. 1 of Article X of the new Constitution states, among
month. In Wisconsin, our Vice-President, Mr. J. H. Puelicher,
other references to Sections, that "any member of the AssociaCashier, Marshall & Ilsley Bank, Milwaukee, has taken up the
tion may become a member of such Section as may best benefit
matter of publishing these talks with every banker in the state.
This was construed to
such member's business interests."
Thus the co-operative value of these talks to both bankers and
mean that a member bank might be enrolled with but one
publishers is rapidly becoming recognized. Mr. Puelicher has
also taken up with publishers of school books the matter of in- ' Section, and soon after the Boston Convention the General
Secretary addressed a letter to all banks enrolled in both the
serting lessons upon thrift in the readers used in our "public
Savings Bank and Trust Company Sections, requesting that a
schools, and has hope that this will be done.
preference be expressed as to which Section It was desired to
We have again, in co-operation with the Board of Education
be affiliated with.
of New York City, arranged Thrift courses throughout that
There were 510 banks enrolled in both Sections. In response
city. Four courses were presented last season as follows: Borto the General Secretary's letter, 290 banks chose the Trust
ough of Brooklyn, ten lectures; Borough of Bronx, eight lecCompany Section, 190 banks chose the Savings Bank Section,
tures; Borough of Queens, nine lectures, and Borough of Rich5 banks stated that they did not desire enrollment in either
mond, seven lectures, or thirty-four lectures in all. While in
Section, and 19 banks did not reply, and therefore were not
other cities a talk has been given only now and then upon this
assigned to either Section. From these figures it will be obsubject, we have great hopes that through the co-operation of
served that one Section lost 314 members by the operation.
the American Institute of Banking, which is also working along
However, since the Boston Convention we have received 175
similar lines, this phase of our work will be more generally
new members and lost 22, which would show a normal increase
taken up in the near future. Mr. Knox, our Vice-President, has
of 152 had it not been for the above circumstance.
been of great assistance to us in this work in New York City,
matter of
Upon the recommendation of this Committee the
and has taken an active part in each course presented.
so as
the Constitution of the General Association
amending
Section,
Since our last report a communication has been addressed
to permit enrollment of members in more than one
meeting,
to all Vice
-Presidents again urging the organization of Thrift
was presented to the Executive Council at its last
such
Committees in their respective states, and a gratifying response
and referred to a special committee, who have prepared
believe
has been received, indicating that in many states efforts are
an amendment for action by this Convention, and we
interbeing made in at least one of the three directions suggested
that the adoption of said amendment will be in the best
above. It is our aim to gradually organize local campaigns in
ests of the Association.
every state. And to this end the Secretary has communicated
Our statement of membership to date is as follows:
with the officers of the several State Banking Associations in
2378
Membership, September 1, 1913
175
advance of their respective conventions soliciting them to bring
New members received since September 1, 1913
this highly important matter to the notice of their body with
2553
the view to securing their interest and helpful advancement.
290
Lost, Trust Company Section
Under direction of this committee the book of Forms for Sav5
Lost, Banks desiring no Section
19
ings Banks and Savings Departments in Commercial Banks and
Lost, Banks did not reply to Secretary's letter
22
Trust Companies has been compiled and published by our SecLost, failure or merger
Over six hunretary, as authorized at the Boston Convention.
336
it was printed,
dred copies of this book were ordered before
which enabled us to deliver it to our members at four dollars
2217
Net membership, September 1, 1914
for this
per copy or practically cost. While claiming nothing
all
book except that the forms it presents are typical, nearly
The detailed statement, which is attached hereto, shows that our
forms are reproduced in actual size, and we believe the book
membership is composed of
356 Mutual Savings banks
to be practical and helpful.
a
767 Stock Savings banks
A chart showing the organization and administration of
472 State banks
large trust and savings bank and embodying an advertisement
428 National banks
Savings Bank
of this meeting, was mailed every member of the
27 Trust companies
the
Section about one month ago. This chart was taken from
154 Trust and Savings banks
and gives some idea of the comprehensive
13 Private banks
new book of forms
of this
All of which is respectfully submitted
manner in which the book has been treated. Copies
(Signed)
CEO. E. EDWARDS,
during the convention upon application
book may be obtained
Cha4rnurn.
office of
to the Secretary, either at the registration desk or
the General Secretary.
most
Report of Committee on Law and Segregation.
The most recent, and in the opinion of the committee,
important step yet taken in our Thrift Campaign, is the appliRICHMOND, VA., October 13, 1914.
cation of motion pictures to the teaching of Thrift. This idea
Mr. Chairman and Gentlemen:
our Secretary many months ago, but its exeoriginated with
Owing to the fact that the Postal Savings legislation has
cution finally became possible through a friend of the Chairbeen looked after by a special committee and the interlocking
Committee, who succeeded in interesting the Vitaman of this
directorates legislation has been watched by the Federal Legisgraph Company of America in our work to the extent of prolative Committee of the General Association, there has been no
play illustrating the principles of
ducing a motion picture
need for activity by this committee in regard to pending legisdramatic setting which would atthrift, clothed with a strong
lation, and in view of the legislative transition through which
public. Your Committee entract the interest of the general
the financial world is passing, it has not been deemed wise for
play which was
gaged a gentleman to write such a two-reel
this committee to recommend any new legislation since the
the result of his efforts
entitled "The Reward of Thrift," and
Boston Convention.
which produced the
accepted by the Vitagraph Company,
was
Especially would it have been unwise to press the matter of
15th, through the General Film
play and released it September
segregation during this period after the principle has been so
prinwhich has forty-eight branches located in the
Company,
generally opposed by the members of this Association, as repreThe significance of this step lies
cipal cities of this country.
sented by the Currency Commission and the Chicago Conference.
be possible to
that through this medium it will
In the fact
Also it was found at a comparatively early date that the oppeople during the year, not to
reach six or seven millions of
position to segregation, while misinformed, was yet strong
and it is conceivable that besides accommention those abroad;
enough to keep the segregation provision out of the Federal Rewherever exhibited, it will
plishing a great amount of good
serve Act, with the plea that it would be taken up at some later
appropriate publicity matter which
very nicely supplement
time after the main features of the bill were in operation.
any community at the time
might be issued by the bankers of
However, while we may not report any direct result of this
the play is exhibited therein.

SAVINGS. BANK SECTION.
committee's work, it is still on the alert for any further legislative disturbances.
Respectfully submitted,
N. F. HAWLEY, Chairman.

Report of Committee on Postal Savings Banks.
RICHMOND, VA., October 13, 1914.
Mr. President and Members of the Savings Bank Section:—
Your Committee has endeavored to keep in touch with the
progress of Postal Savings Bank legislation and has reported
the columns
the results of its work from time to time through
of the JOURNAL; nevertheless it is now desirable to review as
briefly as possible the activities of the Committee since our last
general meeting in Boston:
The week following the Convention your Committee began its
work through correspondence with the Director of the Postal
Savings Bank System, thanking him for his friendly address
.to our body and offering our co-operation in all matters of mutual Interest; a little later we began the preparation of a letter to our State Vice-Presidents outlining our objections to the
then pending legislation and suggesting that they make known
their views to their several Representatives at Washington.
Personal letters to various Senators and Members of the House
were written by your Committee and others of our membership,
asking their special help in defeating the so-called Bankhead
Bill, removing the limit of deposits in the Postal Savings
Banks; we had the benefit besides of generous and timely aid
from many sources.
Notwithstanding our diligence in watching the progress of
the Bankhead Senate Bill (S. No. 2,232), we were surprised to
learn about the first of last December that the Post Office Department had executed a flank movement in getting through
the House a bill identical in phraseology with the Senate bill
and known as the Moon Bill (H. R. No. 7,967) ; this bill had
slipped through noiselessly and practically none of our friends
had any knowledge of its existence- until it had passed the
House. While this was an unwelcome development, it simplified our task in that it compelled us to concentrate our work
upon the Senate; immediate efforts were made to place before
the members of the Committee on Post Offices and Post Roads
our objections to the bill, and your Committee, accompanied
by the Secretary of our Section, spent two stressful days in
Washington during the latter part of January. We had personal interviews with Senators Bankhead, Burton, Root and
Ransdell and the Postmaster-General, Mr. Burleson; we also
enlisted the sympathy of others in official life who were in a
position to help. We prepared a brief, outlining our attitude
and our objections, and left a copy with every member of the
Senate Committee; we also put our plea in the hands of the
President ; we endeavored to secure a hearing before the Senate
Committe on Post Offices and Post Roads, but the chairman was
unable to grant our request, because of the pressure of other
business; he assured us, however, that although the bill bore
his name, it had been introduced at the request of the Post
Office Department and he did not stand as its sponsor. When
we left Washington we had good reason to believe that our opposition would alter the complexion of the pending measure.
Subsequently the newspapers gave us some help and our members continued to importune their Senators, with the happy result that on March 2d Senator Bristow introduced a bill designed to allow banks not members of the Federal Reserve
System to accept postal savings deposits—and on March 12th
the Bankhead Bill was reported to the Senate, amended by fixing the limit of interest bearing deposits at $1,000 and permitting the deposit of $1,000 additional without interest. This
was the situation when your Committee made its report at the

175

Spring Meeting of• the Executive Committee of our Section in
the last week in April. Since then the bill has had its ups
and downs in the Senate Committee and in joint conference of
the Senate and the House; finally on August 28th a compromise bill was agreed upon, wherein the Act was amended so
that $1,000 may be received from any one person at any time,
but interest shall be paid only upon $500; the Government was
given latitude in selecting depositories which were not to be
confined necessarily to members of the Federal Reserve Association and in certain contingencies all of the deposits might
be used for the purchase of United States bonds.
This bill as finally passed was vetoed by the President on
September 11th because of the provision permitting deposits in
banks not members of the Federal Reserve Association, the
President asserting that Government moneys should be kept in
institutions most closely subject to Government control. The
bill has been reframed to meet the President's objection and
was introduced in the House of Representatives on September
17th; all banks now having postal savings funds on deposit are
given twelve months in which to join the Federal Reserve Association or relinquish such deposits. The elimination of all
banks not members of the Reserve Association from the privilege of receiving postal savings deposits will work a hardship
upon some of our members, and the President has been importuned to recede from his position, but without effect.
This, then, is the present situation of that piece of legislation which we believe would have been of greatest danger; we
do not apprehend any particular harm from the passage of this
bill, but we did fear grave consequences from the removal of
all limitations as to the amount, even though interest had been
allowed only on a part of the deposit.
We have maintained that in seasons of financial unrest the
timid depositor would withdraw his funds from the local savings bank and deposit with the Government; likewise the depositor in commercial banks would be similarly tempted if he
were provided with a Government safe deposit vault without
cost. This contention has been denied by our opponents, but
the recent experience of the New York Postal Savings offices
clearly sustains our arguments: From July 24th to August 1st,
in eight business days, the excess of their deposits over withdrawals was $46,067; during the next eight business days, from
August 3d to 11th, the excess was $368,484, or 800 per cent.
increase. The extraordinary gain in the deposits of the Postal
Savings Banks did not come entirely from hiding places, but
undoubtedly much of it came from the local banks; it is fortunate indeed that the present law places a limit of $100 upon
the amount which may be received from a depositor during any
one month and limits the aggregate of such deposits to $500,
otherwise the above figures would have been tremendously increased and at the expense of the New York banks.
Other bills are now under consideration in Congress bearing
upon Postal Savings Bank legislation; among them is .one
which increases the rate of interest and which would bring the
system into closer competition with existing savings banks.
Another is designed to permit the funds to be invested in farm
loans.
From time to time it is to be -expected that changes will be
made in the law and it should be a self-imposed task of this
Section to see that these changes are not inimical to the interests of its constituents; it is well within our province, in my
judgment, to have a hand in shaping future legislation and in
resisting as far as we may the encroachments of paternallsm.
Respectfully submitted,
EDWARD L. ROBINSON,
WILLIAM E. KNOX,
Committee.
E. G. McWILLIAm, Secretary.

Detailed Report of Proceedings.
Thirteenth Annual Meeting SAVINGS BANK SECTION, Held at Richmond, Va., October 1 3, 1914.
IticiumoND, Va., October 13, 1914.
The Thirteenth Annual Meeting of the Savings Bank Section
• was field in the Auditorium of the Jefferson Hotel, on Tuesday
afternoon, October 13, 1914, at 2.30 p.m.
J. F. SARTORI, President, occupied the chair.
THE CHAIRMAN: According to the printed program, the first
item this afternoon is the usual President's address. The hour
is late and we have two very interesting addresses, of special
interest to savings bankers, some routine business, and the reports'of committees. I therefore cut my address down so as to
make it as brief and formal as Possible.

Annual Address of the President, by J. F. Sartori.
This morning we enjoyed a long instructive and well attended joint
programme of mutual interest to all the members of both the Trust
Companies and Savings Banks Sections.
The relation, present and future, of the State banks, Trust Companies and Savings Banks to the Federal Reserve Act and the system
of banks to be operated under its provisions was fully and ably considered.
The large majority of the members of both sections are State institutions. Except the mutual savings banks, these State banks otherwise qualified, have the option of joining the proposed reserve banks,
and all, whether they become members or not, are vitally interested
in their future operation and effect on the financial, commercial and
industrial welfare of the country.
It is the plain duty of us all, even though we do not, or cannot
now participate as active members, to extend our cordial good-will and
support with the hope that the ultimate result will be an effective
banking system suitable in all respects to all the needs of this great
nation.
During the past year work of the Savings Bank Section has been
carried on with more than customary diligence and effectiveness.
Through the conscientious and thoughtful labors of committees and
through the efficient efforts of our Secretary and his uniform courtesy
in answering letters and giving detailed statistical. and other information to members, our Section has again justified itself and demonstrated its usefulness. In fact, our work has been prosecuted to the
fullest extent permitted by the means at our disposal, coupled with
the most rigid economy in general expenditures.
Detailed reports of the Secretary and of the various committees,
through their respective Citairtnen, will follow on this programme, and
from these reports which will also be published in the proceedings, the
members, as well as the banking fraternity in general, will receive a
full and comprehensive knowledge of the Sectlor's activities and progress since the last annualmeeting.
As the first savings institution In the United States opened its doors
to receive deposits in the year 1816 at Philadelphia, it has been decided by this section to celebrate the one hundredth anniversary of
this important historical event in a fitting way at its 1916 annual
meeting.
It has, therefore, occurred to us that Philadelphia would be a desirable place in which to hold the convention of the American Bankers'
Association in that year.
To this end it is recommended that the Methods and Systems Committee and our officers be charged with the duty of prevailing upon
the bankers of Philadelphia to extend an invitation, and the further
duty of prevailing upon the Association to accept such an invitation
if extended.

MEMBERSHIP.
Since the organization of this Savings Section its membership has
annually and constantly increased until on September 1st, 1913, it had
reached the number of 2,378. Although 175 new members have since
been enrolled, the membership is now 2,217—a net loss of 161.
This loss is largely due to the operation of the new constitution of
the A. B. A. as adopted at the annual convention held in Boston
last year.
This new constittitiolf has affected the interests of the Savings and
Trust Sections in four ways:
First. The representation of each Section on the Executive Council
has been reduced from three to two.
Second. The official start of each Section entitled to reimbursement
for traveling expenses when attending Spring meetings of the Executive Council and Fall meetings of the Association is reduced to nine
members of the Executive Committee—the President and the last retiring President—instead of the last three retiring Presidents, as
heretofore.
Third. All by-laws have, therefore, been drafted In all respects conforming in letter and spirit to said new constitution, approved by our
Executive Committee—submitted to and approved by the general Execu•
tive Council.
Fourth. "Any member of the Association may become a member
of such Section as may best benefit such member's business interests."
The first three restrictions have to a certain extent limited the powers
and privileges of the Savings and Trust Sections, but they are not virtually material and do not call for any serious complaint.
The last mentioned restriction, however, construed to mean that
members' banks of the Association can only join one of the Sections,
Instead of both the Trust and Savings Sections, as heretofore, is of
more consequence, in that it adversely interferes with an important
object or function of the Association, that is to make itself useful in
the greatest degree possible to its members, so as to attract more
members.

Many banks are doing both a trust and savings as well as a commercial business; the tendency in this direction is ever increasing. While
many of them are not yet legally segregating assets, they are really
doing a departmental business, and evidence the fact by having an
official and clerical force particularly devoted to the care and upbuilding of each class of business. Those interested in the saving work
will naturally desire to identify themselves with the Savings Section
and feel free to participate in its benefits and activity. The same is
true of those engaged in trust affairs. They will want to participate
and be identified with the Trust Section. To limit membership to one
Section. seems to be an unnatural interference with the growth and
utility of both, and serves no useful or necessary purpose. An amendment to Section 1, Article 10, of the constitution, has therefore been
advocated to provide as follows: "Any member of the Association
may become a member of such Section or Sections whose constitution
or by-laws permit of such membership as may best benefit such member's business interests, provided, however, that no member shall have
the right to vote for officers in more than one Section and shall at
the time of becoming a member in more than one Section designate in
which Section it will exercise the right to vote for officers by giving
notice to the Secretary of such Section, which designation cannot be
changed until an intervening annual election.
It is gratifying to report that this amendment was approved by
the Executive Council during its meeting yesterday and will be submitted to the general convention on Thursday or Friday next.
If adopted, the members who have resigned because they could not
belong to more than one Section will, no doubt, all return, and together with the annual new enrollment, should make a record new
membership in the coming year.
All present here to-day are earnestly urged to support this necessary
amendment with your favorable vote.
Attention is again called to the excellent book entitled "The Saving Bank and Its Practical Work," edited by our former Secretary,
Mr. William H. Kniffin, Jr., and published by the Bankers Publishing
Co., of New York.
This, together with the new book of forms, edited by our present
Secretary, should be in the library of every bank engaged in receiving savings deposits. They will serve as invaluable text books for all
who ought to know the history, purposes and ethics of the savings
bank and its practical operation as exemplified by the we'll selected
and most approved forms, methods and systems of leading institutions.
Our Section has been exceedingly fortunate in the thirteen years Of
its existence in having had three very energetic and capable Secretaries, Mr. William Hanhart, now deceased, Mr. William H. Knittin
and Mr. E. G. McWilliam. An efficient and resourceful Secretary is
an indispensable aid to any organization, and particularly to ouch an
organization as this, whose general officers and committeemen must
frequently be selected from widely scattered sections of the country.
Much of this Section's utility and success must be attributed to the
intelligent and untiring efforts of these Secretaries, and to each of
them is due our tribute of respect and gratitude.
It has been my good fortune and the Section is to be congratulated
that its Vice-Peeshient, Mr. W. E. Knox, is a resident and banker in
New York City. With full authority to act, he has performed many
of the duties and assumed many of the burdens of the Presidency.
My personal association with the members and entire official staff
from the beginning has been exceedingly pleasant and profitable. I
appreciate the friends I have made and am deeply sensible of the many
courtesies that have been shown me. It is my sincere hope that I
may be able to meet with you often in the future and be of service
whenever possible.
The next item in the order on the programme is the report
of our Executive Committee by Mr. N. F. Hawley.

Report of the Executive Committee, by N. F. Hawley,
Chailman.
[ We print the Executive Committee's report on page 173.]
THE CHAIRMAN If there are no objections, this report will
be received and entered upon the minutes. It is so ordered.
We will now listen to the report of the Secretary, Mr. E. G.
McWilliam.

Report of the Secretary, E. G. McWilliam.
this
[The Secretary's report will be found on page 173 of
publication.]
take
THE CHAIRMAN : If there is no objection, this report will
the usual course.
the addresses, and
It has been suggested that we now hear
in the proceedings.
postpone the further reports until later on
presenting Mr. A. M. Harris, of
I now have the pleasure of
address us on the
Harris, Forbes & Co., New York, who will
the Light of Recent
subject of "Savings Bank Securities in
Events."

Savings Bank Securities in the Light of Recent Events, by
A. M. Harris.
[The paper of Mr. Harris is printed at length on page 164.]
THE CHAIRMAN: We are certainly under great obligations to
Mr. Harris for his able and instructive address.
We will now be favored by Mr. E. C. McDougal, who will

SAVINGS BANK SECTION.
speak to us on "Recent Amendments to the Savings Bank Law
of New York and the Reasons for Such Amendments." Mr.
McDougal is President of the Bank of Buffalo, Buffalo, N. Y.,
and he has also been a member on the Sub-Committee of Savings Bank of the Commission appointed to revise the Banking
Law of New York. Therefore, he knows his subject well. I
take great pleasure in presenting Mr. McDougal.

Recent Amendments to Savings Bank Law of New York
and Reasons for Such Amendments.
printed on page 169 of
[Mr. McDougal's paper in full is
this publication.]
RESOLUTION REGARDING FARM MORTGAGES RECEIVED.
MR. CHAMBERLAIN: Mr. Chairman, on behalf of the FarmMortgage Bankers Association, I desire to present a resolution
which I have already referred to several of your executive officers, and with your permission I would like to present it now.
I might state, before reading it, that I was very much interested in Mr. Harris' address, where he stated the hardships
that he had in the New England States with reference to hav•
ing them invest in municipal bonds, and also railroad bonds.
• This resolution simply outlines the laws of New England
and the restrictions there. All the Farm-Mortgage Bankers
Association asks of you is to receive it and file it.
Whereas, The laws of several of the Eastern States prevent Savings
Banks, Trust Companies, Trustees, Guardians and Conservators from
investing in farm mortgages upon lands outside the respective States.
and thus deprive investors of the opportunities to take choicest securities—mortgages upon improved and productive farm lands in our
best agricultural States and also deprive the farmers of the opportunity to borrow, for the development of their lands, the surplus funds
of the States where such laws are enforced;
Now, therefore, be it Resolved, That the Farm-Mortgage Bankers'
Association of America make vigorous effort to secure the repeal of
such laws, and that this Association urge the American Bankers' Association to cooperate in such effort;
Resolved, Also, that Edwin Chamberlain, J. W. Wheeler, E. L. Johnson, Peter H. Saunders and John Lee Coulter, be and they are hereby
appointed a committee from this Association to present the matters
mentioned in these resolutions to the American Bankers' Association
and to its proper Sections and officers, and to solicit their co-operation, and to take all such lawful action as to them teems proper to
induce the repeal of such laws.
I merely ask for the receiving of it and filing of it as a resolution.
Ma. PALMER: I move that the report be received and filed
and referred to the Executive Committee.
Which motion was duly seconded and unanimously carried.
THE CHAIRMAN: On behalf of the Executive Committee and
all the members, I want to express our sincere thanks for the
efforts made by Mr. Harris and Mr. McDougal in coming down
here, and for their excellent and able addresses.
We will now return to the regular order of business as set
forth in the program.
The adoption of By-Laws. The Constitution of the American
Bankers *Association p.ovides that an sections of by-laws
must be approved by the Executive Council. It therefore became necessary for us to redraft our by-laws, which the Executive Committee has done. These by-laws were referred to the
Executive Council yesterday and approved by them. There are
twelve sections. Do you want them read?
Ma. STEPHENSON: I move the reading of the by-laws be dispensed with. The pamphlets have been generally distributed
and the members know what is contained therein, and since
they have been revised and referred to the Executive Council
for their examination and approval, I think we can dispense
with it. I make that as a motion.
Which motion was duly seconded and unanimously carried.
MR. HAWLEY : I move their adoption.
Which motion was duly seconded and unanimously carried.
BY-LAWS OF THE SAVINGS BANK SECTION.
ADOPTED BY THE EXECUTIVE COMMITTEE APRIL 30, 1914, AND SUBMITTED TO THE EXECUTIVE COUNCIL AND MEMBERS OF THE SECTION
• FOR APPROVAL AT RICHMOND.
MEMBERSHIP.
1. In accordance with Section 1, Article X of the Constitution of
Association
the American Bankers Association, any member of the
which conducts a savings business may become a member of the Saylogs Bank Section.
ADMINISTRATION.
vested
2. The administration of the affairs of this Section shall be
Executive Committee
In the President, First Vice-President and the
from among whom the First Vice-President shall be chosen.
OFFICERS.
the
3. The President and First Vice-President shall be elected by
members of the Section at its annual meeting. The President shall
Committee and
preside at all meetings of the Section and Executive
perform any other duties incident to his office. The Vice-President
shall assume the duties of the President in his absence.
EXECUTIVE COMMITTEE.
nine members,
4. The Executive Committee shall be composed of
of the Section
three Of whom shall be elected each year by members
Committee shall be
Executive
at its annual meeting. Members of the

177

elected to serve for a period of three years beginning with the next
meeting of said Committee following such election.
5. The President shall be an ex-officio member of the Executive
Committee, and each retiring President shall also be an ex-officio member of said Committee for a period of one year after his expiration of
office. All other ex-Presidents may act in an advisory capacity to
the Executive Committee and may attend its meetings and participate
in its deliberations. Such other ex-Presidents, however, shall not be
entitled to vote or to reimbursement for traveling or hotel expenses.
6. The Executive Committee shall have power to till vacancies until
the next annual meeting and may adopt all necessary rules for the
business of the Section. It may also, subject to the approval of the
Executive Council of the American Bankers Association, employ a secretary and stenographer and authorize the expenses necessary in carrying on the business of the Section.
7. No officer or member of the Executive Committee shall be eligible for re-election until one year following the completion of a full
term of office.
8. The President and Vice-President shall represent the Section in
the Executive Council of the American Bankers Association.
OTHER OFFICERS.
9. Each State having not less than five savings
institutions, members of the American Bankers Association, shall be entitled to a Vice,
President of the Section. Such Vice-Presidents shall be appointed annually by the President and shall act generally in an advisory capacity to the Executive Committee.
OTHER COMMITTEES.
10. All standing Committees of this Section shall so far as practicable be composed of members of the Executive Committee.
MEETINGS.
11. An annual meeting of • this Section shall be held during the
week of and at the place where the annual convention of the American
Bankers Association is held, and at least one meeting of the Executive Committee shall be held during the year coincident with a meeting of the Executive Council of the American Bankers Association.
AMENDMENTs.
12. These by-laws may be amended by the Section in annual session by a two-thirds vote of the members present. Such
amendments,
however, shall not become operative until approved by the Executive
Council of the American Bankers Association.
THE CHAIRMAN: The next. order of business will be the report of Methods and Systems Committee by Mr. V. A. Lerma'.
Report of the Methods and Systems Committee, by
Lersner.

V. A.

[We print the report of the committee on page 173.]
THE CHAIRMAN: Without objection, this report will be received and entered upon the minutes.
The next will be that of the Membership Committee by Mr.
G. E. Edwards, the chairman.

Report of the Membership Committee, by G. E. Edwards.
[The report of this committee will be found on page 174.]
THE CHAIRMAN: Without objection, this report will take the
usual course.
The next report is that of the Law and Segregation Committee, N. F. Hawley, chairman.
MR. HAWLEY : Mr. Chairman, there is no recommendation in
this report. I suggest that it be simply filed.
THE CHAIRMAN: If there is no objection, the report will be
received and tiled, and take its usual course. It will appear
in the book of proceedings of the minutes.

Report of Committee on Law and Segregation.
[The reader will find this report on page 174.]
THE CHAIRMAN: The next order of business will be the report of the Special Committee on Postal Savings Legislation,
Mr. E. L. Robinson, chairman.

Report of Special Committee on Postal Savings Legislation.
[This report is given on page 175.]
THE CHAIRMAN: This report will take the usual course.
While our thanks are due to all of our committees for the
excellent work done by them, we are under special obligations
to this particular Committee. It has done exceedingly well,
especially considering what it was up against.
".
NOMINATIONS AND ELECTIONS.
The next order of business will be the report of the Nominating Committee. That Committee was appointed through the
Executive Committee, with Mr. Palmer as its Chairman.
Mo. PALMER: Gentlemen, this is the report of the Committee:
For President, William E. Knox, Comptroller Bowery Savings Bank,
New York.
For Vice-President, Newton F. Hawley, Treasurer, Farmers and
Mechanics Savings Bank, Minneapolis.
Members of the Executive Committee:
George E. Edwards, President, Dollar Savings Bank, New York.
Joseph R. Noel, President, Northwest State Bank; Chicago.
W. R. Meakle, Secretary, Paterson Savings Institution, Paterson,
N. J.
Member Executive Committee to fill unexpired term of Mr. Rose,
deceased, term expiring 1915:
James Dinkins, Vice-President, Jefferson Commercial and Savings
Bank, Gretna, Ia.

BANKERS' CONVENTION.

178

Ms. LERSNER: I move its adoption.
THE CHAIRMAN: I think a motion would be in order to declare
the nominations closed.
MR. SAYLER: I make that motion.
Which motion was duly seconded and unanimously carried.
Ma. CABLE: I move the Secretary be directed to cast the ballot of the Association for the officers named in the recommendation.
Which motion was duly seconded and unanimously carried.
THE SECRETARY: The ballot is so cast.
THE CHAIRMAN The Secretary informs me that he has cast
the ballot, and I declare the gentlemen named duly elected for
the respective positions.
The next order of business will be the installation of the
officers.
Mr. Knox, it is my duty to present you with this emblem,
which signifies that you are now president. I congratulate you
and the Section upon your election.
CHAIRMAN Ktsox: Gentlemen, I thank you for this honor
that you have done me, and I want to express now publicly to
every member of the Section that it has been a genuine pleasure
to work as I have worked, to the best of my ability, for the
best interests of the Section of the American Bankers' Association, and of the Savings Banks' interests in general.
The thing that made my work such as it was, easy and delightful, was my association with men like Mr. Sartori; before
him, like Mr. Stephenson, like Mr. Robinson, and so on all the
way along up the line. It is a very great honor, I conceive it
to be, worthy to be able to follow along after such a line of
so eminent Savings Bank men, every one of whom has given
excellent service to the Savings Bank Section.
Mr. Hawley, this being in the nature of a continuous performance, it gives me a great deal of honor to pass along the
badge of Vice-President to you. I congratulate you very
heartily upon your election to the office.

MR. HAWLEY : Gentlemen, it has been a most sincere pleasure on my part to serve what little I have in tile past in this
Section, and I assure you it will be a pleasure to serve in the
future. I thank you.
THE CHAIRMAN: Gentlemen, I have an announcement to
make, that immediately at the close of this meeting there is to
be a meeting of the Executive Committee upon the platform.
So all the members, both the newly elected members and the
old members, will please step forward to the platform after
the meeting.
Mn. ROBINSON: I would like to offer a vote of thanks, on
behalf of our Secretary, to the management of this hotel and
to the people of Richmond for the instinted hospitality which
we have been receiving at their hands during the past few
days. We all know something of the flavor of the Southern
hospitality, and we believe that in Richmond we are enjoying
Southern hospitality at its very best. And I think it not only
proper, but I think it a privilege at this time, to so express
ourselves as being highly appreciative of the gallantry of their
men, of the beauty and kindness of their women, and of the
hospitality of all sorts that we have been receiving at their
hands.
Ma. DINKINS: Mr. Chairman, I second the motion, and Suggest that we have a rising vote.
The motion was unanimously carried by a rising vote.
MR. STEPHENSON : I want to make a motion that we extend
a vote a thanks and our appreciation to the officers and members of the Executive Committee, and to the members of the
various committees of the Savings Bank Section, for the efficiency and effective work they have performed during the last
year.
Which motion was duly seconded and unanimously carried.
THE CHAIRMAN: Is there any further business, gentlemen?
Upon motion, duly seconded, the meeting adjourned.

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Full text of Commercial and Financial Chronicle : October 24, 1914 : Bankers' Convention Section, Vol. 99, No. 2574

FRASER