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R K X F G R d
sh o rth a n d


h o l m

k s

repo rter

R O O M , 3 3 2 S O U T H E R N BU ILD IN G
W A S H I N G T O N . D. C.




DECEMBER fcl, 1916


Present at the hearing were:
Hon. Paul M. Warburg, Member of the Board, Presiding;
Hon. Frederic A. Delano, Member of the Board;
Hon. diaries S. Hamlin, Member of tiie Board;
Hon. John. Skelton Williams, Comptroller of the Cur­
rency, Member of the Board;




Representing the City of Louis villa:


Hon. Ollie S. James, United States Senator
from Kentucky;
Hon. Swagar Slierley, Member of the House of Repre­
sentatives from Kentucky;
Hon. Embry L. Swearingen, President First national
Bank, Louisville;
Hon. John W. Barr, Jr., Director national Bank of
Kentucky, Louisville;
Hon. F. M. Gettys, Yioe-President Union National
Bank, Louisville;
Hon. H. 0. Johnson, President Seymour National Bank,
Hon. Percy H. Johnston, Yioe-President Citizens Na­
tional Bank, Louisville;"-'
Hon. W. 0. Montgomery, Yioe-President First-Hardin
Hational Bank.,.Elizabethtown.



Mr. Gh&irman, it I may be permit­

ted, it was not witn the idea so mticii of an open hearing, or


speech, making as it was that, growing out of the talk that I
had had with the Board informally, some questions came up tsuck­
ing purely hanking matters with which I did not feel myself
as■qualified to deal as hankers themselves.

It was suggested

that a meeting he arranged by the Board with certain represen­
tatives ...of the-St. Lotiis Bank present, and some of the Louis­
ville bankers also, in connection with Louisville*s applica­
tion for a branch Bank, and these gentlemen have come on in re­
sponse to that suggestion.
I. do not know that it is necessary for me •to--en\aaerate
the matters that we went over -at our former conference.

The proposition was simply this, that the situation that

confronts Louisville is, to our mind, an intolerable one that
no community could he expected to sit quiescent under, and car- :
tainly one that, with all respect, the city of Louisville is
not going to sit quiescent under, because it believes that as
a result not only of the districting that was made, whereby
-'-Kentucky was divided in half, the eastern part of the State
-that in the old days used to be the pauper part of the State,
and the government of which Louisville helped maintain through
taxation, and which has now become one of the rich and growing
sections, is absolutely denied to us through the arrangement
that forced us to go to a, community that we never did any bank­
ing through in the old days, and we find that our customers are
going to St. Louis by virtue of the better inducements that
they could offer them under the system as it exists than the
Louisville banks.

It means, if it is to continue, we are to

deal there and be bled to death, -or be compelled to put up a
great deal of idle capital that is taken away from the ooaraanities that we serve in order to meet the advantages that are ,
by the existing arrangement 'under the law, given to the St.
Louis banks.
We believe that it was hardly to be expeoted that a Board
whose interests, as reflected b}r its'personnel, were necessar­
ily more with St. Lords than with Louisville, should consider
fully our situation; so that we wanted, to bring the matters di­
rectly here, and make the appeal here, and exhaust, at least,
our resources with you gentlemen, before'considering other mat­
ters in relation to it.


And these gentlemen are here today to bear witness, as
actual bankers, as to whs£t is occurring, and what will continue
to occur, and the reasons why they have thought it is not only
in the interests of Louisville, but in the interest of the sys­
tem, that we should have -a branch bank.
I have understood, today that the Board has determined at
its recent meeting that the time is not ripe for. branch banks,
ana St. Louis lias wired that they acquiesce in that view on the
part of the Board here.

It m a y b e that I may be simply in the

situation that the Member of the House was the other day, who
was to speak on a point of order, and the Chair said, "I am pre­
pared to rule, but I will hear the gentlemanI"

And of course

we do not want to waste your time or ours under that condition.
At the same time, the matter is as acute as the time I tried to
present it to you before.

I would be glad if the Board would

hear these gentlemen.


lay I state first, that Gover­

nor Harding is exceedingly sorry that he is unable to be here

He has contracted quite a severe cold, and is confined

to his home.
The next matter of regret is that I do not see anybody
here representing the St. Louis bank.

Governor Harding had

arranged that some gsntlesaen might be here, but I do not think
anyone has come.

These other gentlemen here from St* horns are

present with refersues to the Clayton matter and do not have
any interest in this hearing.

Mr. Chairman, we had a wire from

Mr. Martin, and he expected to reach here at one o ’clock.


train may be here by this time.

He may be here.

We expected

hiss to be present.

Mr. Chairman, perhaps it is fu-

tile for us to take the matter up without somebody from St.
Louis being present.

That was the very idea of the meeting,

that they might learn gust the situation-that confronts us, and
that the matter might be discussed from all three angles, —
the general view of the Reserve Board here, the St, Louis Banlc,
and .Louisville,



That, of course, is not for ae

to say, what your preference is, whether you desire to wait for
Mr, Martinfs train, or whether yon want to proceed to present
your case without his being present.





Well, Mr. Chairman, It seems to

me, in order to get 'somewhere, I might say that we hare pre­
sented our brief to St. Louis.

We have gotten no action out of

St. Louis because thejr have constantly said the matter rested
with you_gentlemen.

Then, when we came here, the suggestion was

made that the initiative mist come from St. Louis.

And it was

because of that, that I frankly said -I felt as though 1 had been
playing 8pussy in the corner® for months, and it seemed to me
we should come to a point where we.would know just who had the
say in the matter and get a decision on it.

I say that on mj

Perhaps these gentlemen’may not agree with me.

But, as I expressed very frankly to you, gentlemen, it seemed
to me I m s

just wasting your time and mine for weeks here in

order to find out who had charge of the matter.

But would we not be wasting

sore pf your time now that you are here by not proceeding with
the hearing?

Would it not be 'better to wait to see whether Mr,

..Jlfartin arrives?

May I speak for the gentlemen from Louis­

We do not believe it would be very satisfactory to have

a hearing without having St. Louis fully represented.

We also

would like to have the pleasure of puseing the full Board, and v*e
would be delighted to come back in January at any time the Board
THE CHAIRHM, MR. WJRBtERG: •Speaking for the Board, it
would be entirely satisfactory to us.

MR. SIEARI1GEI: -That would be better.

We all have the



Christmas spirit in our bones anyway, and everyone likes to be
at home at this season, and we would rather come back in plenty
of time, and have the St.,Louis men represented.

I am sure it is perfectly sat­

isfactory to us to fix a date that would suit you in January.
(Discussion resulted as .to the time of arrival of Mr. Mar­
tin’s train.)
state this for the Board:

fhile w.e are waiting, let me

You made a statement that the Board -

had decided it was not time to open branches of the Reserve
Banks ?




I just heard that informally.


should be glad to hear the facts of the matter.

I may state we have not reach­

ed any conclusion as .to that, and I may say frankly that the
whole problem troubles us a great deal, because we cannot deal
with Louisville alone without dealing with similar propositions
other districts.

There, is a question of administration in-

volved there, and while we are certain that at the proper time
these steps .are to be taken, it is a question whether the. pro­
per time is here.

But we have not decided one way or the other,

and so in coning here for this hearing you are not wasting your


I was misled by a telegram I was

shown from St, Louis, to the effect that the St. Louis Bank
agreed with the Reserve Board that the tine was not ripe for
the establishment of a branch bank.

I just assumed from that



knowing that you gentlemen had been in conference last week,
that there had been'some conclusion reached by the Board.

I am

very glad to is not so.THE CHAIRMM, MR. WARBURG:.
it is closed.

Do not understand that, that

It is not at all.

MR. BEXiMO (Reading message just handed to Mm):
train will arrive at two-fifteen.


It is due at one-five.


mist he in now.

Mr. Chairman, it has been sug-

gested, if you gentlemen have, as seems to be apparent, seise
other gentlemen to hear on another matter, that we might re- •

That will probably take only a little while, and then

if Mr. Martin appears, we can go on with this hearing this af­

If he does not, we c9.i1 fix some time in January that

would suit the Board.

We could very likely go up-

stairs and hear those two gentlemen, if you decide to wait here.

We would be glad to wait at either

We do not want to disconmiode the Board.

(thereupon a recess was taken, during which time Ir. Mar­
tin, representing the St. Louis Reserve Bank, appeared.)

Shall we hear Louisville, first?

Will the gentlemen from Louis­

ville tell us what they have to say first?


Mr. Chairman, and gentlemen:


we may, we should like to present this matter in a very infor­
mal way.

I listened with much pleasure upstairs &p the way in

wMo3a that <jiestion was presented, and at the same time we axe
delighted that we nave waited until Mr. Martin arrive;!.
manner "born lie is a Kentuckian.

By the

He lias been transferred to St.

Louis, however, and we are delighted that he is here.

I think

it is only right that under the circumstances we should speak
with the greatest frankness with regard to the situation, not
discussing the law, of course, hut discussing the conditions
which apply in-our particular case.
Sometime in the early summer, we made an application,'
that is to say, a large number of petitioning national banks
in the State of Kentucky, a part of the Eighth Eegional Dis­
trict, and a number of banks tributary to Louisville located
in the s outhern part of Indiana, asked for the establishment
of a branch bank in Louisville, their theory being that the
law was mandatory.
With all due respect to you gentlemen, we fully recognize
that the time is with you and also that the place is with you;
>hat we take it that under the law, as enacted by the legisla­
tive body of the Government, it was intended that, branches should
be established in due time and at the proper-places,
low, the Situation in Louisville is this:

le have a cos.“

sronity south of us and north, of us that has been doing business
fox a great many‘years wi,th our city.

-The course of trade and

the course of banking has not been east and west, but north and
south; and therefore the interchange of business has been with
Chicago and with Sew York very largely, and not, as now, under
the ruling of you gentlemen, with St* Lord a and Cleveland.



State, as you know, is divided into -two parts, the eastern part
■being in- the Cleveland portion, and the western part "being in
the St.. Louis district.
At the present 'time we feel this —

and I am going to

speak with absolute frankness, so that there aay be no misunder­
standing with regard to it.

Many of the gentlemen in St. Louis

are intimate personal friends of ours. We look on them with
the greatest confidence.



But there is, gentlemen, very frankly,

speaking, irreconcilable conflict of interests.
there is to it.

That1s all

That *s what we seek for yon to set aside.


•say it to you with the greatest respect and confidence, because
the gentlemen in charge of the St. Louis Bank are friends of

They have been aost courteous to us in many ways*

their interests are different, separate and distinct.


low, it

is natural, in a way, that advantage should be taken of this
situation, and, in another way, I do not’think the law contem­
plates that undue advantage should be given to a particular 2Locality over any other lacality which may be within, the region.
To illustrate this, —

and it’s no personal grievance, it

is simply a statement of fact, — of the nine directors i-n the
Federal Reserve Bank at St. Louis, five of them are residents of
St. Louis.


low, that majr be entirely proper, fend I am not deny­

ing that it is proper, but it shows that we have very little
voice in the conduct of that business.

low, it is not a matter

of pride wl tiros, but it is a matter to be considered.

We feel

it would be a.benefit to that Bank, if we should come in more

intimate contact with them,



To illustrate:

If paper is to -be passed on by the Bank

in St. Louis, it!s quite essential, in our opinion, at least,
that someone who is thoroughly-familiar with the paper which is
considered for discount —

and sose of it is of a peculiar na­

ture, namely, what is known as whiskey paper and tobacco paper,,
which is largely restricted to Louisville and Cincinnati, I may
say, and is not so well known to those other States..


it is proper that someone in touoh with the situation should
aid and advise in the purchase, or rather the settlement, o£ the
question,' as to whether it is proper paper for discount or not*
I pass that by simply as the conditions which exist, and
with absolutely ho reflection on the individuals.

It is simply

a condition, and not at all personal.
How, showing how there is an irreconcilable conflict, for
that’s what it is, we ascertained that a large amount of busi­
ness in the form of bank deposits, not, only national bank de­
posits, but also State bank deposits and trust companies, axe
Jseing diverted to St.. Louis.

It’s natural that under the cir­

cumstances from the St. Louis standpoint they should he diverted

low, they are not diverted to the Federal Reserve Bank

there, but they are diverted to banks in St. Louis.

The result

of it is that the deposits in Louisville are not growing as they
should, if we had a branch.

The deposits are growing in St.

Louis as they would not grow, if reversed.
low, to illustrate that:

We are required to keep larger

balances in St. Louis with banks, as well as with the Federal

Reserve Bank, than we feel is necessary.

The result of that is


that that money is-idle; we lose tile, benefit of it; and fur­
thermore, gentlemen,' the position is gust tMs, that the plea
has been made, and I say it again with no disrespect' to our
friends there, it is very natural that when persons are told
throughout the State, as they have been, that if you send your paper over to St. Louis, we know- every one there in the Bank,
ana-they Know us, and we can have your paper explained, and all
that, why you will likely get accommodations.

low, of course,

the result of that, and I speak purely from the mterial stand­
point, is that bank deposits throughout this territory, which we think should belong to a branch bank, are now going, and

will continue to go, to St. Louis, whereas it isn*t customary,
according to the tradition of the past, that those deposits'
should go to St. Louis.

The same thing might apply if the Bank

were located in Cincinnati, but nevertheless the*- are going then i
in our opinion.

We feel that that is detrimental to the State, -

not only to the city, but also to the State.
low, that'is the condition.' You can readily see that if
checks- axe drawn on Louisville and then sent over to St. Louis,
and then returned to Louisville, why the result of it is there
is a delay of two days, whereas if a branch-were located in
Louisville —

not an agency, gentlemen, but if a branch were lo­

cated in Louisville —

we feel that the Federal Bank would be ■

popularized; we feel that a very great deal of business would be
done with the Bank which is’not now done with the Bank, and con­
cerning which some of our friends have asked us why it is net
done with the Bank in St. Louis, and it is proper that that qaes



tion should be asked.

The reason It has not been done with St.

Louis is. that that region does not feel at home in St. Louis.
They feel they know the people in our region; they feel they
can get on a trolley car and go to- Louisville in the morning,
do their shopping, arrange to have paper discounted, if need'
be, and get bade the same evening, whereas it is impossible to
do that with the distance to St. Louis.

The result of it is

that a good many bankers in our State, which we f.eel should be
tributary to this branch, now borrow their money in lew York
and Chicago and other banks, instead of patronizing, as we
feel they should do, the Federal Reserve Banks.'
We simply come here; we are members of the federal reserve
system; we think it is a good law; we think that from time to
time it needs facts to be laid before you gentlemen, so that
y.ou might rectify unintentional hardships which axe n:ow placed
upon tis.
I shall not go into the arguments with regard to distance,
with regard to convenience, with regard to a great many other
•things, which were presented to the Bank in St. Louis, on which
we- had the most respectful attention.

Those briefs are before

you, gentlemen; we simply wish to lay before you, —

and I hope

that after we have done so these other gentlemen will have some
remarks, —

we have laid before you, and we say it with all

seriousness and with all'^eamestness,'that we feel that under,
the circumstances we are being unfortunately, and, in a way ,
unjustly discriminated against.

Digitized for

Tiese gentlemen have ably stated the

Mr, Sherley


lias told you about it, and Senator James, and Senator Beckham,

they feel it is- a matter, not for Louisville, bat that the

whole State at large is concerned.
How, in that connection, may we -disabuse your minds of the
question that we are asking for a re-districting of a State.
We are not asking for that in any way..

The sole question is, as

we wish to present to you today, that we feel that as the law
is mandatory for the location of branch Banks, that a Bc,nk
should he located in Louisville*
low, the first question that was presented to us in regard
to the location Of a -branch bank was, —
Will it be a drag?

Will it pay, or not?

Will it be a detriment to the Bank in St.

Louis?' After careful consideration of that, gentlemen, we came
to the conclusion that it was onl]^ fair to do as Indianapolis
has done, namely, to give a guarantee, which the banks of Louis­
ville, either collectively or individually, or any other way
that is satisfactory to your Board, will make, namely, that If a
branch Bank be located in Louisville, we will guarantee that it
will be self-sustaining; and more than that, gentlemen, we feel,
that we cannot only make it self-sustaining, but we feel that
it will be a, source of benefit to the parent bank, that being a
child to the parent bank at St. Louis.

In other words, we feel,

that we can, in that locality, popularize the Federal Reserve

We feel that we c a n 'be .self-sustaining where we are not ■

self-sustaining now. -We wi-S-1 bear the burden of it if we are
not self-sustaining, as we confidently consider we will be.
feel there will be an overplus, w?aich we will gladly, transfer


to the Bank in St . Louis*
These other gentlemen are more technical bankers than I am*
I am an officer of a bank, and therefore 'have never gone through
the routine and detail*

And here are ay friends who know well

the details of hanking,

Mr. Swearingen and Mr. Gettys,


Percy H. -Johnson, and all these other gentlemen, who can answer
any question in regard to technical Blatters, which I carmot.
wish to lay this before you.


I felt some■embarrassment about it,

I feared you sight feel that we were aggrieved in some way.


are not aggrieved, except that we feel, and we feel most ear­
nestly, that we are suffering materially, —
suffering materially.

the entire State is

And the Federal Reserve Board at St.

Louis,- I can repeat, and especially Mr. Martin personally, has
helped us out of very serious trouble, which I sincerely appre­

Nevertheless, we feel that as the law provides for a

branch, and no one will question the propriety of the location,
it is only a question of the time, and the reason we feel that
immediate action is necessary, is because we see in detail the
loss that results from the present situation.

I thank you very

sire to be heard now?

Do any of the other bankers de­


MR. F. S. GITTTSri'Mr* Chairman, I will be brief,

I want

to say first, I doubt ifA4 can answer;any technical banking cpes'4


I have been a manufacturer until recent years.-

The argu­

ments made some ninety days ago before the St. Louis Board nave
been printed, and briefs have been sent you.

If they have"been

misplaced, we can supply others.
Mr. Barr has gone over several phases of the matter, which
I will endeavor not to touch on.

Tour first interest, of course,

is not so m e n with hardships that are "being, inflicted on cer­
tain cities or sections —

.the weather, the tariff, and all en­

ter in to a certain extent —

but your first and greatest inter­

est is in the success of this great system.
Sow, to my mind there is a "bigger question than the mere
lack of representation that Louisville might have on that Board,
I think that we can get a patient hearing.

Certainly we have

had every possible courtesy extended to us by Mr. Martin, Gov­
ernor Wells, and liis associates.

I believe we could borrow all

the money we wanted there without any trouble at all, and with­
out being inconvenianced.

However, I consider that there is a

still bigger question in this matter than the mere hardship thafc
is being worked on Louisville.

We are prepared to make some

sacrifices for the success” of this systen:.
ested in it.

We are deeply inter­

We feel we would not be patriots if we were not in­

terested i n :the success of this system.

Sow, the question I re- ■

fer to is the fact that an- important unit of this system is. not
going ahead.

The St. Louis Bank is not performing the functions

for which it was organized.
loir, thatocondition is due to an utter lack of sympathy be­
tween our territory and the St, Louis territory, and I am not
going to any great length about that.

I will simply touch a few.,


Is Mr. Barr has said, these gentlemen are our friends.

We wine and dine with, thesi.

We enjoy tlisir society*

They are

as gallant a set of'gentlemen as ever “scuttled a ship”,


believe that until these twelve regional banks are all maintain­
ing their constituents in close sympathy with them, the full
benefits of the system can never be extended to the people.

low, here is this district lo. 8.

It is certainly very

We need not wait until the storm breaks before we

prepare for the need of this Bank; and-we all recognize the

fact that in these abnormal times the Bank has not had'an op­
portunity to demonstrate what it could, do.

We have to make al­

lowance fox that, and we feel that just as the mere fact that
we had a Currency Association in Louisville, well organized,
the machinery all ready to start up oh August 1, 1914, and that
we met a situation there, that it is important that we get
this district' Ho. % synchronous all'the way through.
low, these prejudices exist.

We are not bad children,


feel that the banks of Louisville should be absolved from such
.„,a little, narrow unpatriotic position as that.
reasons for discontent.

We have good

We were disappointed when w e 'did not

get one of the Federal banks.

You have heard all about that,

le are disappointed, and are 'still grievously disappointed over
the districting; but that1s another-matter.

le have been dis­

appointed and aggrieved oyer the attitude of seise of the St.
Louis banks.

Before the ink was. dry on that great Act, soae of

them had emissaries in the field soliciting business, reflect­
ing on the integrity of the Board that was to be appointed and
to be elected by the member Ijanfcs by saying, "You must have a


friend at Court when you send your p_aper up.
somebody who can properly represent you.n

You must have
How, I ion*t mean

to say that the lieads of those Institutions authorized any such
statements' as that, but I do know that this solicitation went
on after their attention had been.called to it; and I also
know, and I want to pay tribute to one banker in St. Louis, who
sent letters out protesting against such methods, which were
stirring up feeling in -iOiir, territory, and stated very positive­
ly that nothing could be done by any St. Louis banks that could
possibly note be done by any Louisville banks.
We believe that these prejudices will eventually be broken
down, but can we afford to wait for the natural course of


We have got to take human nature as it exists.


is absolute bitterness, outspoken bitterness, among some of
our country banks against the St. Louis Bank, and yet, they all
say, we know, that they have every possible courteous treatment
from Mr. Martin and his associates.

There is indifference and

^prejudice in our own minds against the proposition.
low, .we believe that can be broken down quickly, —

and we

do not know when some financial storm will break over this coun­
try —

by the establishment of a branch at Louisville at the

earliest possible time.

We can assure you results.

said'all that we can saj^. as to the expense.

We have

We will do in

sixty days under those conditions what it will take six years
to do in the natural normal’course of events.

These preju­

dices will all disappear in time, but we are human beings and
it will .take a longer time than thisunit, one-fourth of this


system, can afford to wait, in my opinion,

•Of course, as'has been stated, we cannot hope for those
gentlemen —

those five gentlemen, living over there, to di­

vorce themselves entirely from the St* Louis interests.
would be unnatural to expect it*.

We have felt at times a good

deal like"the old .darkey who had caught a catfish.
wiggling and trying to get away.


He was

The darkey with his knife up­

raised said, ’’Wha’ foil you tryin1 to wiggle, you catfish?

I *se

not gwine t* do anything wit* you except- t 1 clean yof out, an1
eat you!®

We have felt at times that after we were’’cleaned

out and eaten "we would have a very sympathetic hearing over

low, my last word is to say that these gentlemen are all
charming, delightful.friends of ours personal^, hut when it
comes down to a business proposition, they are not thinking of
our.troubles at all.

le have certain rights over there, and we

would like to know where we stand.

It came oas'k to us that our

petition had been passed to the Federal Board.

When Mr. Sherley,

flushed with victory, handed me some telegrams, he said the
Board had nothing to do with it, that it was back to St. Louis,
There is a game of cards called "passing the buck.”
are not children.

How, we

We do not want to bore two sets of gentlemen.

We will bore the St. Louis Board or we will bore you, but we
would like to know which we should present our case before, and


the branch Bank is wait in g>:and needed there, without waiting for
this storm to break, which will come some day.

We know that you gentlemen will be actuated by patriotic


motives, and I. want to thank you and say in conclusion, if you
have any technical questions, don11 ask there of me!

Let us hear about those tech­

nical questions*

We axe "Passing the brick” again?


Some question came up by Mr.

D.elano as to whether there has been an actual guarantee of ex­
penses by the branch bank.

The gentlemen are here to bear

witness; they are prepared to do it, and not to limit that

Sr. Delano seemed to be of the impression that they

would simply create enough business to make- earnings sufficient
to pay some twenty odd thousand dollars, but that the actual
cost was not guaranteed.

I think I am authorized to say these

gentlemen 'are prepared to make whatever guaranty is necessary*

Whatever guaranty is necessary will be forth­


The other proposition was this:

The statement was made they did not see hOF it was that Louis­
ville was at a disadvantage there, against St. Louis.

I stated

then I was not in position to go into the detail of it as I
understand it, gentlemen, and amplify it.

It results simply

that through their correspondents they have a delay of a couple
of days that St. Louis would'not have.

In order to prevent the

resulting loss.of interest, they are required to assure their
customers that they will be credited immediately upon -sji.3

deposit, and in order to make that good they must carry in
St. Louis a volume of money.

That results in that much money

being taken away from them to be used for the service of their

low, if that is not clear, why, I hope some of

these gentlemen will amplify it.

That was one of the proposi­

Some gentleman on the Board made the statement that when
you got all of your reserves in under the law, you could de**
monstrate to the bankers of Louis ville that they would be as
well off as St. Louis.

X replied, for once, that we were from

Missouri, and we would like to be "shown® about that, and if
you could convince these bankers, I was through*
I want to add one word.

There is a fundamental thing in

this matter deeper than all the claims of Louisville or any
other section.

I realize you gentlemen are concerning, your«

selves with what you will have to do elsewhere in case you
-give us this branch Bank at Louisville*

I may answer that it

is very little satisfaction to Louisville to be told that her
rights cannot be granted because it would involve somebody
else, somewhere else*.

I want to express, and I think it will

be borne out by my colleagues, those of us who have been in
Congress, know why this>:iaw came to be enacted, and know that
it could not have been enacted except by the positive repeated
assurances made on the floor, made in caucus, generally,
we were decentralizing the money power of America,


Those of


. .

us wit© had studied the question realized that it was not pro.per to accept at its face value any proposition that looks to
a denial of that basic purpose in the creation of the Federal
Reserve' law,

I. think the debates themselves will show that

Mr. Glass, who had more than any other one man to do with put**
ting this law on the statute book, stated that it was the ex­
pectation of the authors of the bill that most of the business
of this system would be done through these branch banks.


law was written, as plain as it was possible for a human being
to write it.

It did not say, "you may.11 It did not say tfwe

hope you shall," or ’’hope you will"; but said "You shall es­
tablish branch banks.w
low, of course, that, of necessity, leaves a discreation
as to time and place.

It does not leave an arbitrary discre­

tion as to whether or not the branch banks shall be established

When we had a hearing in Indianapolis, the

""-'■'Question was asked Louisville, "fill you not be satisfied with,
a. branch bank?”

Unquestionably; and the understanding all

through the consideration of this bill, from the time of its
introduction until it became law, was that there to be this
local control by the different sections of the country,
low, I called attention the other day to the suggestion
of Mr. Miller when he sopke about the fact that if there had
been a less number of banks created, it would have been per-

haps easier to establish branches; that whatever might be tlie
merits —

and I did not profess to put my judgment against M s

as a banker —

whatever might be the merits of centralization,

neither . M s Congress nor any other Congress is going ever to
permit more of a centralization by reducing tlie number of these
reserves; and sooner or later, if the feeling that is being
suppressed all over this country, touching various branches
does not find an outlet, tlie lid is coxaing off as to tlie whole
low, we had an illustration of tliat down at tie House tlie
otlier day*

ly. committee abolished in tlie bill that it reported

tlie Baltimore sub-treasury, and Baltimore came over en masse to
wait upon the Committee to protest, and finally went out on the
floor and organised enough votes to upset the Canaaittee, and
the Gomaittee on Appropriations. The thing got in more or less
of a row*

The Committee of the Whole proceeded to abolish the

•Boston sub-1reasury, and I believe one or 'two others, and a
.mm'oBx of speech es there were made that it will repay reading,
not for the information they give, but for what lies back in
the minds of the men who are making, them.
Just as surely as I am talking'here, jast as surely the
Congress is mot going to^sit content to see any great cen­
tralization built up at the.expense of other cities by the ma­
chinery of Law.

Communities are not sensitive over the suc­

cess of rival communities when that success is earned in a fair

field of competition, tout they will not sit content, and ought
not, to see that success earned by virtue of law that works to
the discredit of one coaasanity and for the benefit of the other,
How,- as you gentlemen know, I speak frankly. There is not
any use of mincing words. You are not going to get cooperation
in the fullsense of the term on the part, of the territory tri­
butary to Louisville aslong as the situation exists that does
exist now in regard to St. Louis,

If you want that part' of the

territory to help build up the St. Louis Bank, you have got to
convince it that It’s not going to be' discriminated against.

There is many a banker today that is going to Chicago and go­
ing to lew York, and will continue to go to Chicago and lewJ

York, for his accomodation, and will not go to St. Louis; ana


St. Louis is limiting!: and will continue to limit, until all
parts of the system are made to believe that they are going to
be on terns of equality*
Then, a branch Bank cannot succeed in Louisville without
its helping the St. Louis Bank*

If it does succeed, .it is

simply that such benefit to the whole system.

If it fails, it

means, as to the guaranty that these men put up, that they are
that much out of pocket, so that their inducement is to make it

succeed, and by succeeding to help the St. Louis system*
le have been as patient as men could be.

fe are not simply

complaining out of pique over not having been chosen as a re­
serve city,, but we have seen our State cut in half; we have seen


every natural law of trad© upset; an<& we see now our banks be-,
ing robbed by a direct propaganda, and if we sat silent we.
would deserve just what we get, being bled to de&$ii&.

Mr. Johnston is our technical banker, and

he m i l be the last to speak for Louisville,

We will be glad to near Mr.


Me. Chairman, a.nd members of the

Hr* Swearingen unduly flatters 'me*

Iothin<|that we may

say in this conversation, or bearing, do we want to be construed
that we do not believe that this Federal Reserve Act is a great
piece of constructive legislation*

We want you also to feel

and believe that we have entire confidence in your Board, in its
loyalty and in its administration of tiiis law. le find our**
selves in the peculiar position of being caught between two
.mill stones-, and before we get ground to death,' we want to
crawl out.

And that*s why we are here. You gentlemen doubtless

have received a copy of the brief' we filed with the Federal
Reserve Bank in St* Eouis.

More than likely most of you have

not had time 'to go over it, and if you have, if you are like
the rest of us, you have:-probably forgotten it*

I would like

you to bear with me while ,1 read one or two paragraphs from
the brief of remarks that I make at that conference,


‘IBSBB&S:, tlie question ®f the establishment of
branch, tanks ig' one ®f broad general policy, and this
Board has beelx giving the quest ien, of the establish­
ment of a branch bank in this district its careful
consideration, and.
WHEBBiS, at the recent conference ©f federal Re­
serve Agents the opinion was egress,ei. that
were not a@ei.ed at the present'time and, therefore,
should not be establish®!, and

WHESEAS, at the recent conference qf Governors
the opinion was alsd expressed that branches were
not needed at the present time and that all the
needs of member banks could be s.d#<juately cared for
by agencies and that, therefore, at the present
time branches should not be established, and
SKSEEA^, the experience of the federal Beserve
Bank ©f St., iouis in Memphis has been that the re­
discounts of member banks located in that city can
be passed on so promptly as to give entire satis­
faction to member banks and that,, through an agency» .
the present needs of member banks can b© adequately
cared for, and
IHSBBIS., a conference has been eallet on the
subject ©£ establishing a Louisville,
HlEEf.01®, BE IE BESQLYEB, that the Chairman
of this Board b© appointed t® represent this bank
at that,conference'and that he be ins tract eel to
present to the conference, as the jndgaent of the
members of this Soard, that, at the present tin©.,
conditions do not warrant the establishment q £ a
branch bank in this distriet, though final action
on the proposal be postponed until after a report
has been received from the said cQiiferenc©,51


“GEBriLEMEHf:Mr. Barr and lir. Gettys have fully set forth,
the purpose of the request'for this hearing and in
a general way, what we want and is well covered
by their remarks.
However, it has occurred to me that it would
be well to set forth the wonderful development that
is taking place in the Eastern part of Kentucky..
In the mountains of Eastern Eentucky, scientists
have said is contained one-fourth of the world1s
visible coal supply, which at the present normal
rate ©f consumption, they estimate would last the
world for five hundred years to ©ome*
Until recently, this marvelous deposit of un­
told mineral wealth, was practically untouched. Bur.lag the past five years we lave seen striking e v i ­
dence of the imaense possibilities of this section
of our State. During this brief period of five years,
various,railroads have spent over one hundred mil­
lions @£ dollars building lines entering these vast
fields and during the same period of time, large
coal companies have expended.something like seventyfive millions of dollars in the preparation for
operation - and still this great section of mineral
wealth is in Its infancy of development.
With the future outstretched before us, m i
with prospect and possibility that this great sec­
tion of our state is destined to outrival the
famous.Pittsburg district, small wonder is it
that Louisville and its associated banks should
feel keenly the division of our State and the un­
natural banking and trade alignments that have and
will result therefrom.
In Mr. Sarr*s statement, Exhibit lo. 8, it has
been pointed out that the formation of a Branch St.
Louis Federal Reserve lank in Louisville, including
the eighty-five basks located in the territory ws
ask to be allotted, would give the branch bank a
capitalization of §5Q2,0O6 and deposits of ,'§8,072.191.
It is further shown in Exhibit Ho. 11-A that
if the branch was operated under 1 working" agreement
with our local Clearing louse Association, that the
expense for its maintenance and operation would be
most reasonable.


Under Exhibit lo. 11-A and Ho. 11-B, it is esti­
mated that the'branch would not only he self sustain­
ing, but that it coaid and would earn dividends of
&% on the apportioned -stock with a reasonable likeli­
hood of something in addition.
$hese statements and exhibits we are now prepared
to discuss with you and we shall be pleased to have
any of you..: gentlemen question us as to our calcula­
tions;- conclusions and reasons therefor.
It esrtainly was not the intention of the framers
of the Seders! Reserve Act to give undue advantage to
the member banks located in the federal Eeserve Cities.
The faets are, however, that in order to put themselves
on an equal basis with the national Banks of St. 3iouis,
so far as their country correspondents' are concerned *
the Sational Banks of Louisyllle are now compelled to
keep large excess reserves, without interest, with the
federal Eeserve lank of st* Eouis, for the purpose of
obtaining immediate credit for the drafts, &r&ra on
the jjcmisTille banks in favor of the federal Eeserve
With a branch at Louisville, these excess reserves
would- be released to the Louisville banks.
le now desir© to take up with you the' present
method .of cheek collection "by the. Federal Eeserve Bank,
and to. show you how it causes the Louisville member*
banks to have outstanding daily in transit many, many
thousands of dollars in items that to a great extent
would be corrected by the establishment of a branch
bank in our .city, which would eliminate largely the
loss of interest on these items in transit."

Therefore,.now speaking directly to the operation of the
Bank in St. Louis and our own bank* a statement lias been made
by Mr. Barr and ifc. Gettys that representation has been made
that the memb&r of banks in St. Louis were in better position
to serve banks located within our natural territory, Kentucky,
than we in Louisville.

To offset those representations, and

to stem the tide of business being diverted to St, Louis from
Louisville, the national banks in Louisville have made arrange­
ments with the Federal Reserve Bank in St. Louis to pay all
customers receipts and charge to our account, therefore caus­
ing the national banks of Louisville alone to carry an excess
of regular reserves in order to meet the competition of St.

Similar conditions exist in the Cleveland district.

Banks that never before dreamed of doing business with St. Louis
or Cleveland are now doing business freely with them, and in the
.-eastern part of our State we had no business whatever until this}
-year, and last year the banks had loaned large sums in that

The same condition exists in the western territory,

le have practically no loans from the western part of our State
and southern Indiana, We have done-all we could to offset it,
and the only solution weosee for It is- the establishment of
a branch Bank in Louisville,,
low, we believe that as business men if we were to make
this proposition to any big wholesale house of manufacture
anywhere in the United States, -"If you will open a branch in

Louisville, we will guarantee you against any possible out­
come, n they would take the chance.

That is pretty good busi-,

ness we feel, and that's what we have come "before you to ask,
that we he .not further punished*
We know that you have a very trying position to please
everyone, and we realize that in the division of all this ter­
ritory you exercised your best judgment, and the relief that we
ask for now is something that we cannot help hut believe will
he of benefit .to the parent Bank*

le are shareholders in this

lank, and we are speaking to you as shareholders in that Bank
iniasking for the establishment of a branch in Louisville.
We will he very glad to have any questions asked us, and
we will endeavor to answer them.
fore we ask any questions?

Shall we hear Mr. Martin be­

We have heard from Louisville

with great deal of sympathy, and are now ready to hear from
Mr. Martin.


I presume, first,

before I undertake to discuss any of the statements sad© here,
that 1 should read this resolution passed by our Board of
Directors yesterday, explaining why I am here, and giving
me authority to be here:.


In ’uregard to this motion, I would like to state it was
unanimously carried,

Mr. Finley, of course, voting nho#.
And all of the St. -Louis banks voting


Tiiey did.

low, Governor, May I speak a

little further in regard to this'satter?

MR. MAHTIS (continuing):

Hot only the St. Louis^bank­

ers, but the representatives from Little Hook, seconded the

Ihe gentleman from E vansville voted "ayeB.

In other

words, the representatives on that Board, voted aayefl!.
low, bow did that Board get elected?

Mr. Hill was elec-

•fced by banks in Group, by banks having a capitalization ex­
ceeding #100,000.

How was M r . :loods elected?

I am taking

up these- St. Louis men, and gentlemen, in this regard please
understand that I am tryihg to come to you as the representative of District Ho. 8, as far as I know how. .I am coming
to you in that position, and I am attempting to present facts
to you as disclosed by an examination of the district.: I be­
lieve none of you gentlemen will sit here and say that you
have not got absolutely the fairest treatment, that could
possibly be given in every request you have made through me
on the St. Sbuis Bank.


If it is not true, I want to know it.

We have all stated that.

MR. MARTIH (Continuing):

I come to you now, and if your

statements about St, Louie are right, let us know it. I want
to know it as much as you gentlemen do.
I take it, want to know it,

If it is wrong, you

low, let us investigate the sit­

Is I say, Mr. Hill was elected by the bankers in Group..1,
the banks having a capital in excess of $100,000.
was elected by banks in Group 3,

Mr. Woods,

low, they are banks having

a capital of less than |l00,000, and in excess of $50,000-.
Those banks, some of them, in Union City, Tennessee, some in
Kentucky, some in Indiana, voted for Mr. Wood and elected him.
They did not have to do it*

They did it,

low, Mr. Finley,

as you gentlemen know, was elected by the banks in Group' 3*
Mr. Biggs was elected b$ banks in Group 1.
in St. Louis, is a G£oup 1 man.

Mr. Biggs, living

Now, some of these gentlemen

on this Board could have been elected by otlier groups, had
they seen fit.

Recently, Group 3 has elected a Group 3 man,

Me. Ziegler, from Albien, Illinois, to represent it on the
Board. Well, so much for that.
, It seems to me that the banks in the district, and I am
trying to give you this fairly, gentlemen, I have no partner­
ship in this matter, I am trying to get myself in an attitude
of an impartial investigator of the situation.

That*® what I

have tried to do ever since I have had this position. low,
the statement has been made here several times, and I have

heard, it, that the St. Lords Banks are taking business away
from the Louisville "banks, that they are taking the "business
away from the Louisville "banks by unfair methods.

And if that

thing is true, we ought to know it.

Mr. Martin, I do not like to interrupt

I have met in Kentucky representatives of St. Louis banks

that were undertaking to do that in the "banks in small towns
of the state.

MR. MiffiTIU (Continuing):

right now.

I am going to speak of that

I am familiar with that.

It is perfectly true*

Louisville is a competitor with St. Louis to a certain extent.
You gentlemen have your traveling representatives; lew York
has] St, Louis has; all the other cities have.

And I have not

a doubt in the enthusiasm of getting "business that they have
attempted to get business that want to Louisville, They al­
ways have.

For fifty years they have been trying to take

these accounts away from Louisville.
tried it here.
statements aade.

I have not a doubt they

The Senator has seen the®, and has heard the
That proposition is tame.

N.ow, to see what effect that has had, I have tried to
investigate the situation and see what has occurred,

I took

the Comptroller's last report, in which there is a division
where balances are kept, and I find this situation::


53 member banks in Kentucky, the territory tributary to Louis­
ville, I find from that that these banks have on deposit a

total in lew York, Chicago, and St. Louis, of ^503,000.00, They
have with otlier reserve agents, tliat is like Pittsburgh, Phila­
delphia, Cleveland, etc., $1,455,000.00.* ’low in St. Louis at
tliat time these 59 banks, not counting Louisville -- these 59
hanks, had on deposit £98.3.15,00, and there were only 13 that
had depostis there, and the total deposits of all these 59
hanks tributary to Louisville were just f96,000.00.

On the

other hand, 45 of those hanks had deposits at Louisville of
over a million, showing that —

I do not care what St. Louis

has done; I do not care what its representatives have said,—
Louisville has not suffered, according to this record.

Will you permit an inquiry right




Is it not due largely to the

fact that Louisville has met them "by putting sufficient
Mieposite in St. Louis so that it could treat their accounts
:the same as the St. Louis people?

And is not the harm done

to Louisville not simply in losing accounts, hut having to
lose the use of six hundred odd thousand dollars worth of

I willvjuaswer that

Mr. Sheriey.

I think

that can be answered; and right there I hope that the fairness
of the St. Louis Bank will he testified to. The very minute

that you gentlemen called it to tlie attention of the St. Louis



Bank that you were having touble because checks on you could
not go the same way as checks on St. Louis , arrangement was

low you cannot call that an excess balance, gentlemen;

it is not that; “Ton cannot ©-alllwhat you hold there above your
required reserve an excess' balance, becuase our books show it
is practically all-used every day. Really you have an advan­
tage over the St. Louis banks in that, Mr. Swearingen, and I
will tell you why.Some of your banks are using it.
■doing thisr

You are

The St. Louis Bank,-- and I am not holding a

brief for the St. Louis Bank; I am just trying to show you,

and if you gentlemen see any merit in the plan, why get on to
it and use It!

The St. Louis Bank has to keep money in its

vaults on which it receives no interest, to take up these
checks against its account.

What do some of y ou gentlemen -

Evansville is doing it, and ons other city —

I believe.


There is an arrangement with our bank where by

-^if you choose you may keep money in St. Louis and get two
percent on daily balances.

If you want us to we will notify

that bank so they can have a deposit over to us to take care
of your withdrawal at the time it is needed.

Therefore, •'St *

Louis banks can get two percent interest right up to the
second it is needed on t-K@ir balances,'
I,ow let me tell you something else about that. The
Evansville banks have got the thing down to a fine point.
Some of the Louisville banks have, too*


o5 «
MR. S1EARIIGEN:A May I interrupt you?

le mi girt get two

per cent on that,, but we might get sis per oent in Louisville.

But you would have to take oars of your checks,

MR.. SWEARINGEN; Would be one day late.
MR. -MARTINr Would be one day late. You could not bare (e'o)
it out at six percent ana be meeting $50,000,00 worth, of checks
at the same time.

low you are getting two per oent interest

on it, and also meeting your checks when they fall due. It
seems to me, gentlemen, that if I were in Louisville and could
work the St. Louis banks that way, I oould make a little some­

I would be much obliged to you.
Are you not doing it?


I cannot tell you.
Mr. Martin, your statistics there as to

deposits in St. Louis banks are confined simply to mmmber
banks in Kentucky.

The petition does not come simply from

member banks but (from the States banks and trust companies
in the State of Kentucky.
How the oases that came under my observation have been
not only member banks but State banks in Kentucky that have
opened accounts in St. Louis, because they were told by St,
Louis, "le can help you in time of stress.® fhey have been
induced to close accounts 'in Louisville and open accounts
in St. i,ouis.

Until those statistics are completed it does

not seem to me they are of any great value, because you

confine yotirselves to the .smallest percentage of the 'banks and
trust companies in.the State.

I would have been glad to get the other fig­

These are all that were available to work that out. I

cannot understand that though, Mr. Swearingen, — * How can a
State bank in Kentucky say that St.aiLcrais can do more fox it
than Louisville?

In case of stress the St. Louis Bank can

provide them with money.

We in Louisville have to go corres­

pond' with you and make that arrangement.

We are behind time,

at least that is emphasized by the St. Louis banks, and it is
effective in getting accounts.

So member bank can rediscount ■

for a State bank without .the approval of the bank, nor as agent.

For as agent, —

own paper, and lend the bank money.

but they take out their
This is a custom, and you

cannot divide your customers up and say, ,fle cannot lend to
State banks at all,1* Anyway St. Louis is using that as an
argument, and getting deposits.

I understand the point, but

I do not understand how you could enforce it.

If ire have a

bank wanting to borrow money, and we are willing to lend, and
do not have it here, should we not be able to borrow from the
Federal bank in St, Louis?

If you would want to rediscount

^exy heavily, you would keep the door open for yourselves, and

not be too anxious to use your rediscount power for all the
State banks.

It is an argument that ca.n be used both ways

just now.

1- great many State banks, Mr. Chairman,

do not hold assets available for discount, even if members
of the system, and they may borrow on absolutely safe security
and effect safe loans, but the only way of getting help would
be through some member banks,
has not those statistics.
small banks in Louisville.

I am sorry indeed Mr. Martin

Take our bank, which is one of the
Our national bank deposits are

about one-fifth of the banks deposits that' we have,- about
one-fourth, I thinkmand the rest of them are State banks.


few days ago a case came under my observation where we had
two banks in Jefferson, about eighteen miles away, that closed
all their accounts in Louisville, though remaining with us,
and opened accounts in St, Louis. That arguement was effect­
i v e there, and it is being used all over the State and every'Where where St. Louis comes in competition with Louisville.


It seems to me, Mr. Swearingen, Louisville

can counteract that argument,

That is what we are trying to do now.
Tgir suggest by....keeping money in St.

Louis banks that would be. of advantage. I do not know today
what the deposits of any of these banks In Louisville would
actually be if all the checks drawn on them today were charged
against the deposits.,: .’ ..rr; cf


Some checks are out a few days and some two weeks.

It would

be brought down, I expect, to thirty or forty percent, and
we axe cut down to that extent by these checks cashed In St.

those checks come in a day sooner than otherwise,they

would come in, and if a day late our deposits would come in to
more than meet them.
MR. M I R T H :

le would be glad to give you there the aver­

age account so far as our experience goes.
How, in regard to any of the banks interested.
in Evansville, I started to mention a while ago, —

There is
those gentle

men there, I do not know how they have done-it,- they seem
to work it out so they are able to handle checks drawn on Evans­
ville now with a remarkably small excess in our. hands, if you
m n t to call that an excess,

low they meet that situation, and

I think, Mr. Swearingen, there are some other banks —

I am

not talking theoretically now; that suggestion came to me by
i-eeing how some banks were using the situation. Evansville is,
and she is getting two per cent on that interest,

Do yon think it is a good thing,

and in accord with the system that has' been established, to in­
duce additional money to be taken from the member banks and put
into federal reserve banks, because if you do, you and I differ
fundamentally as to what was intended.

Ho, sir.

You are absolutely with me, Con­

gressman Sherley. I think, too, that the money should be in

that cocasunity, so tliat tlie Bank can lend at a reasonable rate
to its customers, and it can be done through tlie Federal Re­
serve system.

Putting it in St. Louis does not

work tliat way,
not stay.

lo, it does not put it there, because it does

Sow look at this:

Here is a balance of $100,000

today; you keep $50,000 excess to meet your checks, that is
#50,000 on balance on our books in tlie morning, sad it meets
all those checks.

it night there is no balance; Toy another re­

mittance you build up youx excess to |50,000.

It does not stay

in St. Louis; it meets your iocal Louisville needs on checks.

It cannot both be'there and

somewhere else.
MR. J0H1TST01:

One of our real problems is how we can

create enough exchange in St. Louis to care for the incoming
cheeks through the Federal bank, because our business does not
go that way.

We have no trouble whatever in osediting enough

on Chicago and Hew York in the bank I am engaged with. We
have been sending on an average of f?5,000 of lew York paper
to St. Louis each day, and stand discounts of ten or fifteen
dollars a day on lew TorFloans.
costs us


In addition we estimate it

100.00 a month tc:
°keep a surplus balance in St.

Louis banks, in order not to get below the requirement in your
bank, and get the six per cent slapped on us for that.


would be eliminated if we had a branch in Louisville*

How about an agency In Louisville?

Could you

not do it with an agency as well as a branch?


I am not 'really prepared to state, be­

cause I do not know how fax an agency can go under general laws
Agencies have different powers.

We give you- full power of clearing checks

from there.


Loaning money?


That*s what we want.



Memphis has found it all right. There will be

no delay in that.

But we are offering you something that we

think will make you money.


Fay don't you take it?

We will, if it is a right thing,


I would like before you finish,

if you will affirmatively- state —
view —

not simply negative our

affirmatively state why you do not think a branch

ought to be established.

I do not want to interrupt.

I think it is stated In the regulation.

do not want a conclusion.

lo; that is a conclusion.

I have known that for months.


want to know the reason on which the conclusion is based.

MR. MMiflHt

I will try and sum that up before I finish

There have been some statements 3aere than Louisville does not
say the "business exists there now.

Does it, Mr. Barr?

Ho; we say it m i l popularize the Bank, and we

can develop the business.

It does not .exist noif?


Ho, but it will exist through Louisville, if a ■
branch Bank be established.

Banks no^r go to Chic ago and lew York,

which would develop some business with us.

They would coae

to us.

Mr. Martin, may I ask you one question?

I an told the objection has been saade that there is one'banker
in Louisville who is not in favor of this branch. He frankly
states that he is not in favor of this branch, and he has given
as his reason for wanting the branch there, that if the Federal
Reserve branch should be opened in Louisville, it would do so
much business it will take away some business from M s bank in

Weawould like to know who he is.

When I was told.that argument was used,

I said that was an argument in favor of the establishment of.
a branch Bank in LouIsvixleJ

E. wish we had brought that man along! (Laughter)


One of your bankers in my office this past

week told me that there was one such banker in Louisville. I

said that is an argument not against tlie branch Bank, bat in
favor of it.

Mr. Williams, I did hear one man say .

lie did not care about the branch because it isould reduce tlie
rate of interest,

Another argument in our favor!


This was quoted to me.

He thought it would

give tlie 'branch Bank so much business it would tak e away some
of the business from his own bank.

We have every bank •’
■s. signature on this

it would help any I

We might get. one of them to say that if

MR. MARTIN: I. have also tried to find in looking into
this thing — to see what the actual attitude of the St. Louis
banks have been to the Federal Reserve Bank. low, those
gentlemen are not perfect.

We all know that none of us are.

We are all after business.

At least, when I m s with a bank,

we went after it,

I guess all the rest of us do it, and this

developed from the books, I think it is worth saying, St. Louis
carrying seven-eighteenths of its reserve as a total.
as of December 9tB..

This is

Total of deposit with the Federal Reserve

Bank of eleven million dollars; Louisville having six-fifteenthf
had a depost of fl, 833,000.

The other banks in the district,

carrying five -twelfths, had on deposit in the reserve bank at
St. Louis,


Mow that’s what they had to keep.

Bow mail did they actually keep5
How much did Si

They had to keep that much.

Louis.-have to keep?

Well, it had to keep

It is actually keeping $13,085,000.


has to keep $1*^32,000, and Louisville is keeping f1,924,000.
So that, according t6 that, f100,000 is all the excess Louis­
ville is needing to take care of all of its checks, provided
it is not keeping any more than that.

low, the other places

in the district, outside of Louisville and St. Louis, have to
keep §9,228,000.

They are actually keeping |10,000,000. That*

an increase of a million,
I just bring that before you because I am impress, gentle
men, with the fact that the Board of Directors of the St.
Louis Bank are doing the best they know how.

Speaking for

rayself, I will say to you that I am doing the best I know liow,
^trying to come to a proper judgment as to what is good for a
!Sederal Reserve system.

Ind I do hope that I have a broader

viewpoint than the federal Reserve Sank, just of St, Louis.
The good of the entire system is ay chief aim.

You would be benefitting the Federal

Reserve system if this bank is established.

That’s just what I want to know*

Sow, I will summarize the things, if I am

able, the things that to my mind make me feel that a branch

bank is not warranted at Louisville*

I have no objection

to stating the facts upon which ay conclusions are based.
First, the Federal Reserve Bank at St. Louis has been es­
tablished just a little over two years* The system has been
operating just over two years, and it is not fully developed,
I do not see any necessity of taking on a new function in m y

That’s the first thing.

Second, it is my opinion that through an agency at
Louisville every clearing facility that could b© wanted can
be given to Louisville,
Third, based on our experience at Memphis, I do not
believe that you can have a need for re-discounts that c a n H
be passed on so promptly by the Federal Eeserve Bank of St.
Louis that all of your needs will be taken cars of.


gentlemen, in this connection, the only reason for a fullfledged bank is to take care of discounting such as exists*

Fourth, it is stated in the brief that the business does

not at present exist at Louisville, but that if the branch
is placed.there, the business will be created,

low, frankly

when the system is only two years and a month and a half old*
I cannot see why there is a necessity of putting in an agency
to create something that does, not exist right at this time*
There was one other thing that came to me while I was
talking her9 , but I have forgotten what it was*



Mr Martin, may I ask a question?
Sure, maybe you will recall t M s point to

me „


Just the last few weeks half a million

dollars of paper has gone to St. Louis for discount, which
would have been put into the branch Bank.

Gan you say that now, Mr. Johnston? Memphis

said”given us an agency; we will give you two and a half aillion and thirty-one thousand dollar a.

She had what looked like

the business in her hands on this cotton crop, tot her promise
was not fulfilled.

las that going east instead of to the

St. Louis Bank?
MR. H U T U :

I think it was going to Chicago, lew York,

Boston, and soiae of it went there anyhow.

If you had not put a branch in Memphis,

you would have probably have had that one there anyhow.

Ho, sire; no, sir; I want to say for the

Memphis bankers, I believe they put everything through that
would normally have come to any branch or anywhere else,. I do
net believe they would have put in a cent more.


We believe you have made a system

which, according to the existing machinery, requires trade to
run in channels that it does not run in naturally.

low, to

say that because it does nor run, it does not exist, is to try

a conclusion the facts do not warrant*

It does exist, but

it wfollows the natural law and course of trade, and will con­
tinue to do it, and unless you afford it §* facility equal to
that, itgoes along its old and natural course*

I know of

two of the "biggest financial houses in Louisville who do all
of their M g "borrowing east, and do not do it at home at all.
low, that ought not to be a healthy condition there for St. Louis
or for Louisville.

It can be remedied by a branch bank. But

you cannot by any law that you will pass, or any system, com­
pel them to go to St. Louis against their interests. They are 1
not going to go.
MR. MkRTHfl Some of that is due to local conditions,
Hr. Sherley, I think.

I would like to understand

Ton said they had two houses that did business away

from home?
business away from home.

two mercantile houses that do

But they do not go to St. £,ouis

because they have never had connections there,

Hid they ever bank to any

extent in Louis vilie before the system was started?

A certain amount of banking in

A n could nolrbe done there; perhaps, on account

of limited capital,, but it could be done there through a
branch Bank.


I do not quite follow. Be­

cause it oould only be done through, your local banks?



If your, looal banks wanted to

re-discount more for those houses, they could do so through,
St. Louis.


I think you could get those

people- to aid in the development of the branch banlr, where you
cannot get them to help at all as to St. Louis,

I only want to eliminate thingp

.that do not apply.


I think that is a concrete fact,

MrX Chairman.

You will find mercantile


houses in St. Louis that borrow in lew York*

Many of them.

THE CHAIHMM, MR. WARBURG (Continuing)r And in Chicago
"that borrow in lew York.

I do not think that would be remed­

ied by a branch Bank,

I differ from you.

You have no

desire on the part of the people to help St. Louis,

lew, we

feel we are being absolutely discriminated against.

We feel

our State has been past arbitrarily cut in two, for there is
no possible combination that oould have been as unfortunate
for Louisville as the one she drew in the lottery of division




I am not asking that to try

to argue tlie matter at all, but to find out how that particu­
lar feature would be affected by the establishment of a branch

Tour proposition, Mr. Sherley, is that

these mercantile houses in Louisvilla, out of a desire to help
Louisville, would be inclined to throw or keep some of their
business there, providing you had a branch; that they are not
concerned in sending their business to St. Louis now,

I think that is unquestionably


I can see that.


I am doubtful about that,

I belong to two large corporations which do

business with two Louisville banks to the limit, and they could
discount paper with other banks in Louisville, opening up ac­
counts, and the result would be the re-discount of this paper,
which now goes east.

I am on those boards and know they do it.
We had an account opened with us last

week by a concern that borrows one million or a million ana a
half dollars, and it was moved from Buffalo and other accounts
in lew York.

That would increase accounts of that kind,


think, if we had a branch there, we could afford to take them
on xn mere ease and comfort, knowing we could get the'money, if

called on for a large amount of money, instead of dealing with,
the Ban$ far away.

and you daal wdth a directorate

that is not familiar with the character of paper handled in
Louisville, and the feeling, whether it he justified or a
real one or not, actually exists, that you m i l not get the
quick accomodation through St. Louis that you could through
a branch bank.

low, that feeling is there, and it is going to

stay there.

Mr. Martin, could you tell us, in a general

way, under what conditions a branch bank would be desirable or
necessary, or if -ever?

I am not cp.ite sure whether that re~

solution means that 3*ast ^

^he present moment it. is not de­


It is at the present.


When would it be desirable?

-condition of things?

I mean what

So that we can all know when and agree

when a branch bank would be desirable.
St. Louis, but in general.

Do not confine it to

I am m&eh puzzled. there that if

branch banks are desirable, why are" they not desirable from
the moment of inception.. - If they are desirable at all?


can see the force of that, although we are facing the cosHsand <
Congress, but I would really like to know the condition of

• ^

That is the most pleasing state-

It is a "command,n under the law.

meat I have heard.


What is the condition that would raake the

branch bank justifiable?

St. Louis, you state, you can take

care of Louisville at the present time.

Is there any time

when it could not or could do so better than now?

Let me supplement that;:

Would it not

be pr&cticable_ or desirable whenever that branch should be

And is not that aet by the fact that

Louisville guarantees it to be self-sustaining?
MR. HAllLIlr

I can conceive a branch of a railroad abso­

lutely necessary, and yet you could not figure out any. profit
if you took the returns of the roads alone, I am asking merely
for information, because we want to get at the bottom of this


That*s what we all want to do.


Gould we not add to the ques­

tion of Governor Hamlin,- fh&t would be the condition -under
which the Board should refuse to ^grant the opening of a branch?

Yes; the whole subject. But what I rant to

get at is what axe the obnditions.

le' would all agree that

the command of Congress should force the Board of Directors
to give a branch.

low, I do not understand that. 1 would like

to have some information; that is, would the condition ever
arise in this or any district where it was perfectly plain


to us we mast establish a branch bank?

Governor Hamlin, I think you

are asking Mr. Martin a question which he shoiild ask you.

v'ery much of my information is obtained by

questions to others,

I am not an expert; I am a judge.


The St. Louis Hank, with five St, Louis

men on it, might consider that the proper time had ariived
when they had exhausted their competition with us in the dis­
trict , and could not get anything more.

They would say, “low,

boys, you can have a branch.u"

I am surprised you put it on any such basis

Hr. Schweringen,

It is a cold-blooded business proposi­

Oar business is being taken away from us

St. Louis

banks. That’s what sticks in our cr©F*

What do you mean by your business being taken

Let me have a list of the accounts you have lost.
HR, SlEARllOlIf::

|^e have lost balances.

Well, balances.

I will keep it thoroughly


I will give you two or three we have lost.

The United States national —
MR. MARTI!?: (Interrupting) r

I would like to have it in

writing, Mr. Johnston,


Hx. Martin is about to answer Governor Hamlin ?ls

question, Mr. Johnston.

Do not disturb liiml

I do not believe you fcgentleieen are losing

the business you think you are.

I think you are mistaken.


As reserves have been transfered,
A- ' have not
all bank balances been reduced? These gentlemen may be accus­
ing St. Louis banks for something that has been going on all
over the country.

That is a very important

thing here.

The State banks constitute an important

matter here.

It should not be anything but a

practical question at the present tirse.

fhat’s the good of

Q about theorr?
MR. DELAM): We want the facts here.

If a man in reply to you says,

WI am losing accounts, 8 that is a physical fact.

Everv bank in the country is losing accounts.

.The law intended it.



We understand that, Mr. Delano.

These men are not talking about those losses.

THE C H A I R M M, MR. WARBURG: The idea is right through the

entire law, that the country bankers, the small banks, shall be enabled to be free of the necessity of keeping idle bal­
ances with other banks, that they shall keep one balance with
the Federal Bank*

low, what happens to Louisville is the

same thing that happeni. to St. Louis, and will happen to other

cities also.

They will X©se a lot of balances when the final

transfer of reserves is made,

le hope it will be done in six­

ty days, if you pass our amendment that we have put in.

Mr. Warburg, what we refer to is two Spe­

cific instances and concrete illustrations that cannot be af­
fected, whether this, law is passed or not.
, and,the other at Hodgenville.

One is the bank at
Both opened ac­

counts at St. Louis because they said in time of stress St.
Loiiis could give spicker service than they could obtain in
Louisville. ,

Those are facts.

I am glad-to have those facts.



I am not caring whether St, Louis

can give them better accommodation or not.

The fact remains,

if as a.result of this arrangement Louisville is being con­
stantly bled for the benefit of the St. Louis Bank, it does
not make any difference to us; the result is the same; we are
.losing blood.


,It makes a difference to us, Mr. Sherley.

If the belief is well founded, we have-got to reckon.with it,

le are not making a direct

charge against the Federal Reserve- Bank in St. Louis that it
is refusing to give consideration-— proper consideration—


Louisville patrons, but present in the nature of thingsthat they cannot give that consideration which a branch bank
in Louisville, familiar/with the class of paper that would.


originate there, could give.

But I. am pressing the tiling tha-

is constantly evaded here, tliat I would like to have met, and
that is as to the fundamental purpose of the law, which was
to have branches,' and to l®@p the money in the different cen­
ters and not to pile it into twelve regional centers,


the men who "believe that there should be eight branches instead
of twelve, or four instead of eight, or one instead of four,
naturally are not going to favor the theory of branch banks;
but against their opinion I put the law and. the opinion of
Congress which, I think, ought to control in the matter.


this is- the reason I ask why— what reason can be given why a
branch Bank should not be established, other than that some
men believe that it is a bad thing in any way to decentralize,

and if you want so to construe the law as to pile the money
into as few hands as possible.

What is' the limit, then?

¥e have four

cities within about sixty miles of each other which have
claims fox branches, Cincinnati,, Indianapolis, Columbus, and

They are all in a nest by themselves.

One has

just about as good a claim as the .other.

Perhaps, but the time is coaing,

Mr. Delano, if this law stays on the statute books, when all
will have branches,
Ir. Sherley.
very speedily.

That, I think, is precisely the question,

And some of us hope that that time will come
'Some of us regret that that time has not '

Personally, I think the time will have eoae, whenever

there is evidence that makes it fairly clear that there is an
amount of business that naturally and normally arises in a
part of the district that can be better served by the estab­
lishment of the branch in its midst than by obliging it to go
to the Reserve Bank at a distance,

This business is not going to go there.

MR. WILLIAMS:'' That fact is not easy to determine, but
the fact is that up to the present moment the federal Reserve
Banks, even where they have aerved, or been in a position to
serve, a contiguous and rich territory near their doors, have
had to scrape to pay expenses and to earn something towards

The country is still, and I fancy that is true in

Louisville and other sections of the country,- is still at the
moment provided with banking resources beyond whai the busi­
ness community would digest.

I think it will come., and ©ore

speddily than any of us would have believed six months o£ a
year ago.

There will be a development of business, a stream

-•■of re-discounts, flowing into the Reserve Banks and from
^agencies that will justify us in planting branches so as to
make the facilities of the system more accessible. .

How, what harm will oomP,

question has never been answered,
guarantee any possible loss?


lhat harm will come if we

We do not break down anything,

nor add a burden, because we .pay it out of our pocket, if ire do
not create the business.

low, whors hurt?

(Mr. Williams starts to reply.)


lay I answer that?

ME. WILLIAMS: ' fh&t’s all right.

I will see if it does not

agree with my opinion; I will supplement what yea ia?e to say.

May I say, Congressman, that

when this law was still in the frying pan, I was one of,those
who favored a smaller lumber of banks, hut I pat in a special pi da
to organise a large number of branches, and lead up to that.

fifty or sixty?

will, haye them.

Yes; and I still believe we

In fraace and in Semany and in many of the

smaller coontries, they have hundreds of branches.
hay© them, of course, as this develops.

And we will

Bat all- these began

with one branch, a&d as it grew branches were established. You
would not develop or build a. railroad erxeept by a trunk line
first, and then build a few branches later.
BEPB1SMEJ.EE YE SHSSIiBY; lay I inter rapt there, Hr. Chair*
man? Your illustration does not apply, for this reagaa: You
"already have your railroad.

You have banks and natural tenden­

cies in which the trade was going.

How, you are arbitrarily

undertaking to determine how trade shall move.
gets business.

So; the railroad goes where it

Of course, you see we are building up very, very

ind, moreover, birr tracks have not been laid.

She thing

has not been considered sufficiently, and we have not even gotten
our ftm&s in yet.

We are going to get the final installment lov-

ember nest, unless there is an amendment to have these funds paid
in earlier, -- we hope in two




Then, only, will it be complete.

But, in addition

to that, qwe will not then have the final force which we should


We axe bringing in another amendment in order to pro­

tect this enormous structure of credits and deposits which


has grown up in this country, which goes into untold billions.,
low, you say, and Senator James has asked, "if we make this
guarantee, what’s the harm done?


Ihy can you not do it then?B


Uow, suppose we did for you what we would have to do for
Cincinnati, Baltimore, Pittsburgh, and possibly ten or twenty
other cities, also Milwaukee, that have exactly the same
claim as you have?


Milwaukee against Chicago is in the same

position as you are against St. Louis,
sequences be?

lhat would the con­

You say you guarantee the business.

If you

look at that chart over there, you will find that the funds

we have had to protect this tremendous structure of twelve or
thirteen billions is two hundred and thirty five million dol^-lars, and if you add to that,-I .do not want to bother you
""‘'with technicalities,-It may be, three hundred and fifty mil­
lion dollars of. go Id;-now, that is not any too much; that is
too little*

That *s why we axe coming to you and saying,

Give us a way of getting stronger*"" low, how are you going
to improve your chanees>4)y investing more money?



this were nothing but a business proposition, a railroad,
that wants to earn dividends, or a b&nk that wants to earn
dividends, I would say, wgo ahead ana do it, if you promise


to earn dividends for me.

Go ahead and open your shop. 51 But

you can do it only by investing your money, and your banks
would, in tliat case, go ahead and force business, which’pos­
sibly would not "be the proper way to do for a Reserve Bank,
In otlier words, at a time when we are just now facing the pro­
position of a large amount of m o n e y w h e r e we must hare meas­
ures to fight the pernicious influence of two or three hundred
million dollars of gold that will come into tlie country,-from


the point of view of the country, it is our duty rather to
get the gold and shut it up,

You say, if I understand,$pou are

afraid that the establishment of a branch bank here and else-,
inhere would result in the discount of too much paper, and re-


suit in unstablizing the whole system by having too grat an
expansion of credit* .

Let me right there state that

-'"'4s no^ the conclusion I mean to convey.
is just what I want.

At the proper time that



But not now?


I do not think the time is

ripe now,

I think your mistake is in the

assumption you will create^iusixiess, in order to xa&ke the
branch pay.

lhat you are going to do is simply to take the

business that would go-to otlier sections,and is being done.

and do it through the branch, and the volume of the business
in the country remains the same*

The difference is this*

If it goes to Chicago today the First lational Bank invests

The First lational Bank does not care how the United

States comes out.

They are not charged with the responsi­

bility of keeping our country's finances in a position suffi­
ciently to protect it.

But what you want in that case is

that the reserve system should step in and take the other
business from the other bank,

We do not do that. The Chicago

bank does business again through the Reserve Bank.

lo, it does not, if my

first contention is right that the Reserve Bank should not,
and as a matter of fact our re-diseount has been very slight
until this recent flurry, the Chicago First lational does not
^corne back to us, because only up to the present time the
change has come*

Let us put it another way,

then. Those coaummities that are fortunate to have banks with
suffices nt capital to take care of business without calling
on the reserve system sfiall get the business from those coatmunities, and those of us>:#ho believe we have legitimate business that ought to be at home and go through the Reserve
system are to be denied that until conditions get safe enough

to make it proper to. do It*

If you are right in your con­

tention, 'Mr. Congressman,-pardon me, I am not going to make an
argument j 'because I am not discussing your branch at all,


answering the broad and general question,-I want jrou to sym­
pathize with, our point of view and our difficulties.

We are

not unwilling at all, but we are waiting for the moment when
we can go ahead and open the whole business up.

Let me suggest, Mr. Chairman, the

danger of inflation in this country does not come from interior
towns, but from other influences that are piling up consider­

able credit, without the necessary gold back of it.

That is

the thing that is making us fearful about this situation*

Ws. Congressman, the infla­

tion going on now is due to the fact that in the biggest towns
everybody buys too much at too high prices, and consequently,
‘ leads to excessive credit,

And we see the other side of it,

‘but that is not here nor there.
R2PRESSITATIY1 SHERLEY: . If I understand you, during tiaes,
of marked prosperity,when the growth of the city would be the
things to expect, we cannot hope for relief, but when every­
thing gets so tight that ’there is no business doing* that then
we can get a branch.

That -is'eeias ;just the reverse, frankly,

of what it should be.


That would, I believe, not

be putting it qp.ite- correctly,

I am trying to strip it, and

show just now it affects Louisville,

Let eq say that I do not

think any banker sihere would say they would not get any re­
lief, if they wanted it.

The difficulty how is the natural

transactions which would go to a Reserve Bank are hardly ex­
tant due to the fact there has been a tremendous influx of
gold, and the reason the Louisville banks do not do business
with St. Louis just now is really the time has not come for
it yet.

I think we are talking about two questions, which

ought to be disconnected.

The one is, and I sympathize with

jrhat, that the Louisville banks are in a position of suffer­
ing through this temporary condition, because of the cam­
paign in their district which is hurtful to the banks*


other proposition is the broad proposition as to branches.
..Has the moment come fox' the Board, where it has got to take
=a plunge and spend the Government1 s money?

Because whatever

we spend is the Governmentrs money. The Government, in the
end, is entitled to the money which it finally will get.
We are not earning at this time.
earning its dividend.

St, Louis is far away from

What St, Louis and other banks are

doing— they are living onjrjothing. The local business is

per-cent of the business they are doing.


have invested some money in government bonds that is not local

The rest they are getting through Hew York, New

York is buying and feeding them to lew York,

In order to

keep St. Louis going there is not enough. local business to
■ earn a fraction of the dividend or the running expenses of
St, Louis,

And,still, you come to us and say in the district

which, is perhaps the poorest outside of California, we should
go ahead and open a branch, and if we do it there, we are
increasing the charges.

Oh, no; we guarantee that*

THE G H A I E M M M R . WARBURG?. But, I t*.l you, that is
forced business, business which probably the Federal Bank at
this time should not'do.

And if you guarantee it for one

year, if conditions go on,-and moreover I donTt believe
in this guaranty business, I think it is bad, and I for one
would not want it, because if you do it, you cut to pieces
the power of the Federal Bank in St. Louis, and you destroy
the power of the Federal Bank here to control that business,
could not say to the Bank in Louisville, you must not do
this time as a Reserve Bank what you want to do. The
bankers will understand me.

Suppose they wanted to invest

because they wanted to earn dividends, we could not tail
them not to do it.

I.-Wanted just to ask a question. Have

you heard any complaint from any other districts of the banks
in the Federal Reserve centers reaching out to take business
that belonged to other cities?

TEE CHAIBHlf, MR. WARBURG: Yes; we have.



Ihile you are waiting and marking time

about locating these branch banks all over tiie United States,
these twelve centers are reaching out to take away the hank
deposits of those hanks not in the Reserve cities* The longer
you wait, the worse it is.

tod, Mr, Chairman, it has always

seemed to me that the branches that should be located, ought
to be located as soon as possible.

The business'of these citi

has been built up, and if, those branches are established,
we have no objection- to Cincinnati for instance, having a

It would be helpful to us all along the line.


Hr*. Swearingen, on that, we have felt that

anybody who was building up bank deposits now was building on
a sand foundation, because it was something that was likely
to get away from them.

I have always thought, Mr* Chairman}

.so far as I could figure it out, that every national bank in
the United States would be simply like a country bank.


is naturally their position so far as the national bank de­
posits are concerned.

But Mr. Martin left out of consider­

ation1 the State banks. >.Jhat they make deposits you of course
know, and we make money out of it, just as well as national
banks, and I suppose we will lose- ultimately national bank

MR. DEIAIB: ..It would be interesting, as a matter of fact
in this record, if we could get a statement of tbs- gain or
loss of the bank deposts of the St. Louis banks, and of the
Louisville banks, as a whole.

13?. Delano, there is no better indication

than clearings of Richmond and Atlanta and increase of their
deposits; how they have grown as soon as branches have been
established, and how the others have not guown.

The clearings

of Richmond show something over ninety per-cent increase from
last year, and Atlanta seventy-five.
THE CHAIRMAN, MR. WARBURG: That is correct.

It would not be possible to make a sat­

isfactory comparison now.

All deposits have increased.


may have lost very little aa a matter of relative action. But
we have lost part of that custom sbo St. Louis.

I think our

bank deposits are more than they were a year ago, but they
ought to be greater than they are now,

About the time the division was made,

and St. Louis was selected, I happened, to be traveling in ay
State in the eastern part, and I met a gentleman,- representing
one of the St. Louis banks.
gent fellow,

He was a very affable, intelli­

I ran across him at two or three different

p l a c e s a n d learned from him what he was doing there, going
into the smaller towns, down there, and his argument to these
banks was that St, Louis had been made the Reserve city and
their accounts should be established with M s banl: in St. Loui

where they could be- better taken care of than in Louisville or
elsewhere; and lie was visiting all that part of the State. I
got that from him.
same thing.

And then I heard of others doing the

So, there was a regular campaign.

as Mr. Swearingen suggested a while ago.

It is true,

There is such a

thing as a legitimate solicitation of business, in a way, but
he was using the fact that St. Louis was the Reserve center as
an argument to pursuade the small banks to take accounts away
from the Louisville and to put them in the St.aLouis bank.
And that1s what’s been hurting them.

Of course.

II believe we are not going to get anywhere

discussing our troubles in Louisville.

I believe we could

talk all night on that phase of the question and not get any­

I believe we will have to satisfy ourselves by going

home and carrying mth us in our minds some sort of definite
or concret expssssion in answer to the question that has been
asked by Congressman Sherley and li’. Hamlin,-If not now, when?
L.8t?,s get to those two questions that seem to bear on the
whole thing, and might be helpful to you gentlemen as well.
Gan we take that home with us?
MR. DEL110:

Mr. Gettys, you and I have both been business

men, and are not looking at this thing from any day dreaming
point of view.

If you were running a big establishment, and it

became necessary, or you thought it was necessary, to start
a branch in.another town, I think before you invested a lot

of capital in that 'branch, or got a large, staff there or any­
thing, you would begin by putting in ansagent there and find­
ing out just exactly how much business you were going to
win by that b’ganch.

We established a branch in Hew Orleans

for a year.

That branch was a pretty heavy drag on the At­

lanta Bank.

Even now, though it is contributing to the At­

lanta Bank, the Atlanta Federal Reserve Bank considers that
it could do everything that it does with that branch, if it
had a good agent on the spot'with telephone coannunication
with the parent bank. So, with the night letter service and
all that, they could perform every function at an expense of
perhaps one-third of what they are now spending,

low, I ask

you, as a business man, would yon not begin in a new field
that way, rather than begin by laying out an expenditure of.
twenty-five thousand dollars a year?
MR. GIYYTS: Well, ay impression as to the success of tie
Orleans branch is not quite in accordance with yours.
...The information that I have is that it has been a success,
an unqualified success.

So, our impressions are different.

You have information that I have not.

I am not trying to conceal any facts.


Oh this question of., preparedness —

we are

all prepared for this branch over in Louisville, and we want
to pull the lever, and you are not risking anything; cer­
tainly, if the thing is a financial failure, the Louisville

if tlie business does not develp, year after year putting tip
a loss.

We will come up here and ask you to relieve us of it,

if it is not a success.

We are taking tlie risk for the first

year, and we can demonstrate perhaps in a year just how much
of a success it is.

We are not asking you to put 1your capi­

tal there, wholly haphazard, nor are we operating under a
wrong principle.
have them?

If not branch banks now, why should we ever

We, in Louisville, are of the impression that if

twelve banks are good, fifty-two are better.

Congress, I suppose, had in mind that there

were going to be twenty-five thousand banks in this system,

But why wait?

Let’s get right after this



How, as several speakers have said, this is

a very new system. The last reserve payment was only made a
month ago*

The final reserves have not been finally transfer­

red, as/you know, and not until next l.ovember will the matter
there had been more members, directors, or officers of the St.
Louis bank coaling from Louisville, would have have a different '
feeling than you appear to express here?


lot at all*
me that you are

knocking at the fundamental idea of the Federal Reserve System,
and that is this:

Because this whole elaborate machinery of

constituting directorships of the various Federal Reserve Banks
was a great hardship on the big banka which have hardly any

representation at all in these banks except in ycror district,
the idea was that every part of the district should be repre­
sented, and that the banks should be the districts and not one

And I, for one, do not see how you do not make it so *


Chairman, I think some of

the trouble is we are looking at different sides of the shield,
I labor under the disadvantage of being a Congressman, but I
am a practical man, and I know what was in the minds of the
men who made the law.

You gentlemen are thinking all the time

of strengthening these central Banks, and manifestly, no system
is ]going to be of any value that does not make them strong to
perform their functions.

At 'the same time, it is not altogether

impractical for men to think about the communities that these
banks were intended to serve, and the purpose for which we
created this machinery,

le did not create twelve banks for

thea to make money for themselves or for ff!Uhcle Sam,« but

vte did have in mind certain communities to be served. How, we
dd-not believe that proper, facilities are being given to our

We think we are being required to do business in

a new and awkward way, in a way that by the natural law of
trade we would not do otherwise, and we believe if that is insisted on our banks will” just refuse to go into the system, and
will do their busiiiess otherwise, as a good deal of it is done


Tbat would be an argument for a change in the

district lines,

Perhaps so. But that proposition


involves so much that is not practicable we would then be met
with the same' argument as now,-HIf we re-distxict for you, we
have to open up every other district. 11 We are trying to be prac­


tical to an extent at least, of offering what we believe is a
remedy, though not a comp3s te one; there never will be a com­
plete remedy for Louisville, when she has had the State multil&ted the way it has been. But with us, we will be -satisfied if
we get this. How, if we have got to come to the proposition of
redistrioting, why the thing becomes hopeless, because as soon


as we get into this, we will be told that these other districts

will be affeoted, and you cannot begin anything like that*

Of course, all the arguments

here are predlcatS-d on the one that with the Louisville banks
are not going to do business with the St. Louis bank.

I do not say they are not, but I

-“ d° saY water will not run up hi&l, unless pumped.

Only in our extremity, Mr. farburg.

THE OHAIRMM> MR, WARBURG;:. That is the unfortunate part,

We are human beings,


That,is the point. I do

not know whether I speak for my colleagues here, I have very
little sympathy with the point, if every city says-fe are nos

going to do business with Chicago, etc., and so it goes, and if
we give, a branch to Indianapolis, the oitiea below Indianapolis



will 'begin, "Sow, you have made Indianapolis a point,


you must give us one,ff We Have the same trouble in the case
between Seattle, .Spokane and Portland.

You give it to one,

and the _©■ther two will be in the same position.

So, it means,

there is no end to it,

Of course, if,because you give

it to Louisville, you have to give it to everybody else, why
then, your argument is sound.

But if we do not present a

justifiable case, then is is denied us. But you are asking
frank questions..You.have no hold on the State banks, parti­

You have no hold on the merchants. They axe free

men to do business as they please.

If you do not make the

Federal system attractive to them, they will not do business
with you.

That is not spite, that’s the law of self-interest

that all of us follow*
THE CHAIRIM, MR. WARBURG: " Nobody kna&rs sore than do we
“4 hat the law of self-interest has made the dickens of a 30b
for us to administer this system,

We are trying to look at it

from an unselfish point of view at least, and we have got to

get into the system the spirit Tfhere the system is being con­
sidered as a whole, where we have no patience really for the
fellow who says flI must"nave it my way, or I will not play.
has Louisville got. anything?

Are we asking that?

Good Lord,

It is just by chance left on the

I am glad to forget it, Mr. Chairman. I am glad to forget



You ask, why don*!t the State banks come

In our district I remember one section in the Act w M c h

provides-did pr ovi de- 1 bat if we re-discounted paper, we would
have to waive protest, and everything of that kind.
THE CHAIRMM, MR. WARBURG: It was taken out*



Hot entirely*



le have to aaive for ourselves, as I

understand it.

You do not have to put anything on your notes-

M r . Swear ingen.

But I am Just giving my impression,

You do not have to put the stamp on,


But you have to waive it, and what is

the effect? Why should I send to that bank?

then you make that state™ '

ment, address yourself to the Senate and to Congress please
(indicating Senators James and Beckham and Representative



But .I want to get before you one pro­

I want' to borrow'money.

I can send to Chicago or Hew York.

I have notes to re-discount«
They take them.

clerk fails to do his duty, they, are responsible.

If their
But here



I .J

we have an arrangement supported by the banks, tMeli says we
can do as we please.

You suffer. That's what kept notes out

of that Bank.I Would never borrow money under that condi­

-That may be remedied now however.
THE CHAIRIM* MR. WARBURG-; The Board mggested it should

be remedied.

Would you, as a banker yourself, if you

wanted to borrow money, want to send your note to a place
where if they failed to send notice, the endorser would be re­

This is. very interesting, but

I do not see what bearing it has on the branch bank question.
If not now, xfhen?

Mr-. Hamlin and Mr. Sherley have asked,

Sow, we do not seem to have arrived any­

I do not suppose we will arrive anywhere.

And so far

as %73 axe concerned, we are disposed to leave our case with you
I do not t^hink we can add anything
to it.

It is very pleasant and agreeable to hear you able

gentlemen discuss these questions, and we get great enlighten­
ment from it, and go home and feel we are wiser men. But I do
not think, as far as we are concerned, we can do anything fur­

We feel very deeply about this.

I have not a prejudice

against St. Louis or anyyqdy there in my mind, but every time
the matter comes up, the thing goes the other way, That,:s the


propostion all tlie time.



And with that, so far as we are

concerned, we are willing to rest the case.



May I say for the Board that

we have' done a "great deal, and on behalf of the Board, I want
you also to uaSerstand the difficulty we are laboring under.
I am sorry Governor Harding is not here today, and I want him
to have the benefit,of hearing what has been said, and he
will get that -through the report.-



le want, and you know it

we want the system to be a success.

If anybody does, the

Board wants it.

We want it, but Mr. Warburg, we want to

help make it a success.

I am glad to know it. But with

you it is the bank first.

Tha£ is the law of human nature,


We have nothing but the success

' '’-of the Federal Reserve System in mind, and are practically
‘ with it day and night, and have to take a view which may be
more remote to those interests.which, of course, appear every­
thing to you, because there are so many other things that have

to be considered, in order to be fair to everybody.

This ques­

tion of branches is one-^that we have discussed quite recently
very, very considerably, and we have considered the question
whether just because it is so far-reaching* we could not develop;possibly some time simpler machinery, so as to take care


of tile hardships without going to the great expense, and pos­
sibly to the complication and disadvantage that it means, if
you get too many Boards, forty or fifty Boards, wiioh are the
danger "to the system.

The difficulty is today that every mea­

tier of every Federal Reserve Board thinks that they are the
Federal Reserve system, just as m e n as you Louisville men have
thoughts against St. Louis. So, each Federal Reserve Bank has
an interest of its own.

That whole thing is passed up with all

its difficulties and all its hardships to us and we finally
have to see what we can make out of it*
go home unhappy at all.

I do not want you to

I hope you will feel that whatever

can be done, will be done by us, and while we cannot answer
your question straight off the bat, when will you hav6 the branch
I, for one, am willing to say you will have a branch,
to come, if the system is a success.

it ought

There should be and must

be a lot of branches.

But one more thought in connection with lew Orleans. lew -

'Orleans is a success, or more of a success, since it has de­
veloped or founded the new banking system, that we have tried
to develpp.

Since the bankers* acceptances have become more

popular down there, the bank is not doing re-discounting, but
they have been buying bankers* acceptances, against cotton, etc
and Memphis has taken a step and developed something that
was a contribution to its new system of banking,

low, there is

nothing that will develop the necessity for branches more than

that we have to get the regular business*

X "believe as soon

as the bankers' acceptances develop, as it has,-we have one
hundred and sixty million dollars of investments, that is
quite a stun for a young baby only -two years old.

And when we

started only two years ago, nobody thought we would have bank
acceptances to a larger extent than twenty million possibly.
And so it goes.

If the thing is permitted to be develpped

systematically, these branches have go to come.

We cannot

avoid the$, and we would be more happy than you when we have
fifty branches coming.

Mr. Chairman, that is interesting and

hopeful, but the point in ay mind is thist

Do you think that

it’s just to communities to let them suffer by this com­
petition, and delay this introduction of this system, so
that in the meantime they will have lost their business?

lay I give you an answer

very frankly, and that is, I had the feeling while you were
stating the case, you were not really meeting the St. Louis
argument:.* 'JEhereiisfnotm::thing the St. Louis banks can get
out of the ‘system you can not get, and if the State banks, think
they have not proper opportunities under the Federal Reserve
system in St. Louis, it is not so, and if we ever find the
least bit of discrimination or hesitation in doing everything
fox Louisville banks that they are entitled to, we will go
into it pretty fast.


The Federal Reserve Bank, of course,

. i
■ !

Is doing its best as fax as it is able* But the location of
the Bank in tliat city damages us*




agree it is so,- but if


a St. Louis private bank goes to a State bank and says it can

do more for it in re-discounting than you can do, it is tell-' j
ing a lie.
MR* SlEARIIGEHr- It can do it more promptly,
MR* JQHISTQI: We are losing business both in the Gl&re~ |

land and St. Louis districts.


We are making everv effort to'

offset it, of course.





1 would like to have the


There may be something, teat it may look bigger to
you than it is, when in black and white.
‘ MR. JOHNSTON: We want to stop it while we are existing® . }
SHE CHAIRMAN, MR. WARBURG; M e a s e do not misunder}
! '■
j - stand. We may or may not open a branch there soon. We will
j cois-ider it from all points of view carefully and.sympathetic 1


MR. DEM. 10 1

Mr. Swearingen, there is one kind of a
guaranty you can give us, worth more
think, than a guar-



anty, of expenses, which is probably something that you




cannot give, because the Comptroller will not recognize a

pledge of that kind as binding, but simply a sort of debt
of honor on your part, but one guaranty that will really


mean a great deal to the success of tlie Federal Reserve
System, and tliat is* a guaranty of some State member banks*

That is a large question,, and I wish

I had the opportunity to sit in the shad© of a tree and talk
with, you about it*



MR. SWEARINGEN: a State banker?

We have a title and. trust company but


there is not one particle of service you can render us.
We have nothing at all- we can redicount with you®

The only

ob3fot;;of our carrying accounts is to have some money for

Shat is about the only thing* We loan on collates

alj we do not lend on comaercial paper.
a piece of comercial paper,

Very rarely, we take

M r » Earr is the President of

the largest trust company of the South. He will make the same
statement to you*.

The Louisville Trust Company, aa.other, is

.-...likewise with us, and-the 'United States Trust ©ompany in
. Louisville,

If the Federal Reserve System ever is extended

so that it can extend accomodations to institutions on gilt

edge collateral, even if they charge more interest for that,


and sake it not undesirable to get it, I think you.will get


hundreds of thousands in^the system, .For myself, if the ruling j
rate was four or five, I would rather be in that system, and
pay one per-cent more for the money than to carry our
balances in Chicago, and Sew Yorkj but today you could not
render any service.

Biat*s tHe. real.reason we are not in*


It's the same way, — ■ I think I speak for Mr. Bsrr.

How many Stats bankers are


Since Mr. Swearingen has mentioned my name,

Mr. Martin well knows, we operate a trust company which is a
trust company pure and simple.
trust estates.

It has the management of

I appear here in behalf of the National Bank

of Kentucky, being one of its directors.

The reason that our

trust company does not ioin the Federal System is due to the
fact that we have never discounted a dollar of commercial pa­
per, nor do we have any commercial accounts.

And, therefore,

none of the benefits which would be derived from obtaining
money in times of distress would be available to us.

We get it in lew York.


Ihere would you get it? •

Prom whom?

We get it from some of the banks, the Bank of

■-America and the Bankers* Trust Company, and some of the other
companies * and we endeavor never to borrow very much.

We sell

our ’
bonds and conduct the business that way*

Do you not think it would Id©

a handsome thing if your bank would be in a. position to do

What are you doi&g to carry out the decentralization of

the system?


So one in Louisville has been more heartily

in favor of the Federal System than myself.



Theoretically; and if aSr Board of Directors

were willing to go into commercial business, which, sooner or
later, they may, I say,'Without hesitation, my recoismendation
would be to join tlie Federal Reserve System.
I cannot say.

More titan that,

It shows my approval of it, and it shows that

if we c.uld receive the benefits of it, which, under the pres­
ent system, we do not, I would have no hesitancy in recommen­
dation of the adoption of it.

The Kentucky Title Savings & Trust Com­

pany is a combined bant and trust company.

Its principal

business is, however, issuing mortgage bonds on real-estate.
It has a savings deposit and an individual deposit.
small bank.

It is a

Most savings propositions in Louisville are*


had,. I think, in 1914 or 1913, sixteen hundred thousand dol­
lars on deposit.

I started down to the bank one Monday morn­

ing, and I met Mr. Gettys there, and he said, “Have you heard
-’"*'frhat they are doing to your bank?”
;"have closed up.*
know why.

He says, 0They say you

That was rather unpleasant news.

I did not

But that was on Monday, and, they were in an uproar*

That day we lost about' ten thousand dollars of deposits.


did not mean very much, and would hot have been, noticed except
for this talk.

On the next day about eleven o* clock bedlam

broke loose, and we were Galled upon during that day, —

I think

there were about ten thousand people who paid us a visit, —
and we paid out sixteen hundred thousand dollars between eleven

o*clock and nine o ’clock that night.

We put up si gas we would

stay open until every depositor was satisfiedable to do it, you may ask?

How were you

Our main account is carried with

the Merchants Loan & Trust Company of Chicago.
saw what was pending I telephoned to Mr.

Is soon as I
, and I

said, ®We are having a run on us and need some money.H

He said,

aHow much will you need?11 1 said, "I want to start on one-half

He said, "Send your credit over tonight and go ahead

and check.H

Where would I have been with the Federal Reserve

System, if we had had to send paper to be perused ana accepted
by a committee?

I would have been broke*

We also raised money

in identically the same way in the American Exchange Bank in
Hew York, and a bank in Chicago.

I asked Mr. McVeigh.--,once how

he would have met that situation.

He said it would have been

met all right.• That was before the system was started, but I

have never really understood how it would have been met at a
distance like that.

I did not know Chicago was

^further away than St, Louis.

Gould we get that kind of service from the Fed­

eral Reserve Bank of St, Louis?
this point out:

In other words, I want to get

Our relations with1'the Bank were such that they

relied on us;-.; that when we said we needed the money and would
send over the credits, they,-took our word and judgment.


received our credits next morning, and everything m s satisfac­


I do not know whether you fol-

low our weekly statements.

You may- have known there was a

slight flurry in Hew York last week.

On one day the Bank of

Hew York paid out eleven or twelve million dollars.

Fire mil­

lions were re-discounted by banks that had never been there

They sent over their paper, and there it was, and the

rest was taking acceptances from them in a jiffy.

Our paper is in Louisville and this Bank is in

St, Louis,

It makes no difference.


you had gone to the trouble of having an understanding with Mr.
Martin’s bank, there would be no difficulty at all, and if you
would begin to buy bankers’ acceptances at three per-cent, in­
stead of having the® loaned at two per-cent on call, you would
have satisfaction.

The law permits us only to take certain

things, and those we take without any hesitation.
course, the ".'hole system is predicated on that.
be no hesitation.

And, of
There shoxild

So that you should know for certain if you

-have good paper, there can be no hesitation at all.

And it has

b.een done.

I brought this out for this reason.

This bank

could get no service from the System,

Let me cose to that in a mo­

After that, Mr. Barr said, you'got your accommodation

in lew York, and Congressman Sherley, who says we do not de­
centralize enough, in Chicago.

You are the ones that he ought

to complain about, even if you had not got a oent that you

could re-discount with us, which, of course, would not be so.

because you can arrange your affairs so that you have enough*
but if you bad only securities, if I were president of the
Trust Company, I would become a member of the System, because
I wanted to contribute my reserve to that general fund of pro­
tection,- in this case, for your ora. bank, and if you strengthen
your own bank and your other State banks would coae into the
System, you would double the strength of the -St. Louis Bank or
of your Louisville branch, and you would not go to Sew York.
And the only way to break up this centralisation is to create
central points which are strong enough, and that is where I do
not agree with Congressman Sherley at all.

You do not decen­

tralize by having five hundred centers, and there you have
none at all.

If you have one strong point against which you

wish to draw Chicago or lew York

if these State banks con­

tinue to stay out and say, I get my accommodation from the Mer­
chants Loan & Trust Company in a pinch, in a panic, if they do
not become members, though I hope they will very soon, I think
.they have not done their part toward making the .system a suc­

They do not think about doing what is best for the Na­

tion, but what is best for themselves.

The national banks had

to give up things when they came into the System*

Ihy not the

State banks?
bankersf acceptances.

It is not so much in our line to buy
We do not want to go into that line of



lhat are you here for?



¥e are loaning money on collateral.


My dear sir, you have a

right to speak to u s , if you are a good citizen, if you have
any interest in what concerns the community, but you say you



do not-like, you do not care about that*

Oh, no,


He is only speaking about his Trust Com­


I know that,


I know the

other half of him is all right.


Mr. Warburg, we want to thank you very

sincerely for the large amount of time you have given us, and

I want to say that I hope to see the day come when the State
.banks do come into the System.


V- '•