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FEBRUARY 6; 1912







The House being in Committee of the Whole House on the stale of the
Union and having under consideration the bill (H. R. 18956) making
appropriations for the support of the Army for the iiscal year ending
June 30, 1913—

Mr. VREELAND said:
Mr. CHAIRMAN: Through the courtesy of the House I have
been given an hour and a half in which to discuss the banking
and currency legislation recently proposed by the National
Monetary Commission.
Three and a half years ago Congress appointed a National
Monetary Commission for the purpose of investigating the monetary systems of our country and of the other great nations of the
earth, with directions to report back to Congress such changes
as may be needed in our banking and currency system. In pursuance of that command the Monetary Commission has reported
a bill in detail, which it recommends should be placed on the
statute books. That commission was composed of 9 Members
of the House and 9 Members of the Senate. There are 1G remaining Members at the conclusion of three and one-half years
of investigation. The report of the commission and the recommendations are signed by every man on that commission. They
have made a unanimous report. That means, Mr. Chairman,
that in the opinion of all the members of the Monetary Commission the bill which they propose and recommend is for the advantage of all parts of this great country, because the 16 members signing the report represent not only both of the great
political parties, but they represent every section of our countryI want to say, Mr. Chairman, that this bill is not the work
of any one man. It is not the work of any ten men nor of any
hundred men. It is the result of the discussion and study that
has gone on among thousands of people competent to discuss
the subject during the past three years. It is the composite
opinion of all those who have taken part in the discussion.
Mr. Chairman, this plan has been approved by practically
all of the bankers of the United States. It has been approved
by practically all of the political economists and professors
of political economy in the colleges of the United States. That
is, we have both the practical men who conduct the business,
and the theoretical men who study principles and experiences,
agreed in the main upon the principles which we embody in
this legislation.
Mr. Chairman, those who approve of this legislation and those
who disapprove of it alike agree that our banking and currency
system is antiquated and dangerous. While nearly every other
great nation, during the last 50 years, has revolutionized its
banking and currency system, the United States still retains the
system adopted in 1S63, while in the throes of civil war.


There is another thing which intelligent people generally
agree upon, and that is that this is the most important legislation that is pending before the American people for settlement.
The President of the United States during the past summer declared it as his opinion that it is more important than the
tariff, more important than conservation, more important than
the question of trusts, and more important than any political
legislation that has been presented.
Why is it the most important question presented to the American people? It is because, Mr. Chairman, upon the banking and
currency system of the country rests every other great business.
When the banking and currency system breaks down, as it has
often done, every other business in the country necessarily
breaks down with it. It is the most important, because once in
about every 10 years during the past half century this great
country has been visited by devastating money panics, sweeping
over the land, leaving enormous losses and widespread suffering
in their wake.
I need not describe panics. We are only too familiar with
them. Ttie American people have come to consider them as a
sort of dispensation of Providence, as they do earthquakes and
cyclones, wThich are unavoidable. We are all familiar wTith
them. Something starts to frighten the people in some part of the
cpuntry; credit may already be strained too much by lack of a
system that will restrain business from going too fast through
rising rates of interest, and a panic starts in New York or Chicago or some other great center; and then the closing of banks,
the falling away of confidence, the suspension of cash payments, the breaking down of domestic exchange, followed by
shutting down of factories, railroads in receivers* hands, business men unable to carry on their business; finally, hundreds of
thousands and sometimes millions of men thrown out of employment.
This is a familiar story to us all, and yet we can not guard
against them. No banker can be so conservative and conduct
his business upon such lines that he may be sure that he is
protected. He may keep the best bonds the country affords
in his vaults; they are useless in time of panic. He may keep
great quantities of cash in the vaults of his corresponding
banks; he is unable to get them after panic sets in. Suppose
he keeps every dollar of reserve in his own safe. What good
will that do if lack of confidence affects the community in
which he lives? What does it matter whether he has 10
fter cent or 20 per cent of cash in his safe to pay off 100 per
cent of deposits if his depositors are alarmed and panicstricken? I t means that it will only take a day or two longer
to pay it out.
The bankers of our country have no way to protect themselves, because there is no place where their sound assets can
be turned into either cash or credit. I t is this fact more than
any other which makes our banking and currency system so
likely to break down and which makes it so dangerous to the
business of the whole country.

Mr. Chairman, I stand here to say that, in the opinion of all
intelligent men who have studied the question, both here and
abroad, these money panics are entirely due to a defective

banking and currency system and to nothing else. If that is
so, is it not almost a crime for the Congress of the United
States to wait a moment longer than necessary before putting
upon the statute books a system which will safely carry the
business of this great country? I believe these panics have
caused greater losses and suffering to the people of the United
States than all the wars in which we have been engaged, barring
alone the loss of life and limb.

What right have I to say that these money panics are due to
a defective banking and currency system? I say it, Mr. Chairman, because when we turn to every other great nation on the
face of the earth, our competitors for the trade and commerce
of the world, with their longer experience and, as I believe, with
the sounder principles upon which their banking and currency
systems rest, we find that no one of them has had a money
panic for more than 50 years.
Am I not justified, then, in saying that when we, the greatest
and richest in our resources of all the nations of earth, when
we alone have these disastrous and devastating money panics
on an average once every 10 years, am I not right in saying it
is due to a defective banking and currency system?
We have had money panics in 1873, 1884, 1893, and 1907. We
have had semipanics at the commencement of the crop-moving
season in many other years, when credit was strained almost to
the breaking point, ruinous rates of interest prevailed, and it
only needed an incident like the closing of some great bank or
business house to start a panic throughout the country.
It remained for the panic of 1907 to convince the American
people that panics are due to a bad banking and currency system. There was no possible excuse for it, except the breaking
down of our system. It came in the midst of peace and plenty.
It came when there was nothing within the country or without
to alarm our people. At no time in our history had business of
all kinds been more active and prosperous. Everywhere the
railroads were unable to carry the freight offered them, factories were running more than full time, wage earners were all
employed at high wages. It came like a bolt out of a clear sky
to most of our people.
Gentlemen may say that the panic occurred because adventurous business men got possession of some of the great
banks of New York City. But so long as the world lasts
speculative business men will obtain important positions in
the business world. Why should the whole country suffer
therefrom? Why should it not be limited to the institutions
which permit these men to get control of them?
It may be said that credit was strained almost to the breaking point, and it was the knowledge of this condition which
permitted panic to spread so rapidly, and that the business of
the country had grown too fast for its capital. This, quite
likely, is true, but that is one of the prime defects in our system which we wish to cure. We should have a banking and
currency system which gives warning, through rising rates
of interest, that we are going too fast. The American people
are quite likely to go too fast. They are optimistic and
energetic. Under any proper banking and currency system
the business people and the bankers of the country would

receive notice of too great business expansion through rising
rates of interest, instead of going ahead at full speed until
they run into a smash up like an express train running off
the track.
I have said, Mr. Chairman, that we are the only great
country in the world that has money panics. I want you to
understand clearly what I mean. Of course, I do not mean
that we cau escape business depressions arising from natural
causes. If we should have a failure, or a partial failure, of
crops in the United States, it would mean a depression in
business which would affect the whole country. The country
would have less money to spend and could, therefore, buy
less of the necessities and luxuries of life. If there was an
alarm of war, or actual war, it would, of course, depress many
kinds of business.
The point I wish to make clear is that business depressions
in our country too often run into money panics. There are
runs upon solvent banks in all parts of the country. Finally
there is the disgrace of suspension of cash payments throughout the country and the breaking down of domestic exchange.
The banks are among the first to become frightened, because
they know from experience the weakness of our system. Ten
thousand bankers all at once endeavor to draw their money
from the money centers where it is deposited. They commence
calling loans. They refuse credit to solvent parties. They do
the very things which bring on the panic which they fear.
They do it, prompted by the instinct of self-preservation. Our
system compels every bank to try to protect itself, regardless
of the interests of the eountrj', of other banks, or even of its
own customers.
The great countries abroad have failure of crops much more
often than do we. They have wars and rumors of wars more
often than do we. But their business depressions are not followed by runs upon banks, the suspension of cash payments,
and the breaking down of their credit systems. It is the money
panic in the United States and the loss of confidence, resulting
therefrom from which it takes the country so long to recover.

Mr. Chairman, I want to impress upon the House that this
legislation is not a bankers' proposition. I t is far beyond
that. It is much wider than that. It is a bankers' proposition only in the sense that remedial legislation must be applied to the banking and currency system. I go further than
that. I maintain that among all the great businesses of our
country the bankers themselves are least concerned and interested in this reform from the standpoint of losses incurred during panic. The bankers are best able to take care of themselves.
The banker often can see the storm coming afar off. That is
his business. The bank is a close organization. The banker
can quickly take in sail. He can stop loaning.r He can call in
his loans, especially those that are out of tow n. He can even
suspend payment behind the walls of a clearing house and refuse
to pay his depositors the money which belongs to them, and he
escapes insolvency proceedings for so doing, because people
know he has no place to procure either cash or credit in time of
general panic. The most that happens to all except an insignifi31082—10611

cant percentage of our banks in time of panic is that their
earnings are decreased.
It is different with business men and manufacturers. The
failure to obtain cash or credit by them may mean the stopping
of their factories or of their business. It may, and frequently
does, mean their financial ruin. The manufacturer may have to
purchase his raw material, carry along his pay rolls, and make
up his finished stock for six months or a year before he puts it
upon the market. He must depend absolutely upon having a
market for it six months or a year away.
Mr. Chairman, suppose that every 10 years the railroads of
this country should stop running, or partially stop running,
leaving the products of the farm to rot in the field and threatening the cities with starvation. It is evident that legislation
would have to be applied to the railroads, but the railroads
would not be more interested than all the rest of our people.
Not only that, but in regulating railroads as we have we continue to leave the conduct of the railroad business in the hands
of railroad men, merely protecting the general public against
oppressive charges and providing by statute that all of the
people shall receive equitable treatment under like circumstances.
So, in providing for the reform of our banking and currency
system, we need to consider bankers only to the extent of providing that they shall not be able to make undue profits, and
that we shall not give to them privileges except those which
are to be exercised for the benefit of all the* people.
When we remember the losses to farmers during and after
panics we can readily see that they are more interested than
bankers. When we remember the hundreds of thousands and
sometimes millions of wage earners who are thrown out of
employment by panics, and that they have no opportunity to
foresee or to protect themselves if they could; that when they
lose a day's work it is gone forever, we can understantl their
vital interest in banking and currency reform.
While bankers dread panic as sailors dread shipwreck, yet it
has happened in the past that an exceedingly small percentage
of our banks failed to pay their usual dividends.
Mr. PALMER. Will the gentleman yield?
Mr. VREELAND. Certainly.
Mr. PALMEK. The gentleman has said that bankers were
not interested in this matter. I ask this for information: Is
it not true, as alleged, that the bankers of the country have
raised an enormous fund for the purpose of educating public
opinion in this matter?
Mr. VREELAND. I do not understand so. I understand
that the National Citizens' League, with branches in many of
the States, composed entirely of business and professional men
of high standing, have asked for contributions for the purpose
of circulating literature and have formed an organization in the
different States in favor of banking and currency reform.
Mr. PALMEK. Is it not true that, by the committee or some
other organization, various banks in the cities of the country
have been assesssed a certain figure and have donated large
sums for this purpose?
Mr. VREELAND. I understand that anyone can become a
member of the National Citizens' League by paying $1, and

will then receive the literature published by them. Without
knowing much about it, I have also understood that contributions have been asked in various cities, one-half to be made by
business men generally and one-half by bankers. I do not know
to what extent the banks are responding. My information is
that the banks of New York have declined to pay. I do not
know to what extent they have responded elsewhere.
Mr. PALMER. What I am trying to find out is whether or
not the banks of the country are not behind this proposition.
Mr. VREELAND. I hope so; they ought to be. We have
been trying for years to get the banks behind some proposition.
It took the panic of 1907 to convince the bankers as well as
other people that we had a system antiquated and dangerous
and liable to inflict enormous losses upon the country at any
Mr. PALMER. My information is received from a Philadelphia banker, that the banks all over the country had been assessed, that the city of Philadelphia had been assessed in the
sum of $50,000, and that the banks had actually contributed
that amount, and that a large fund, running into several million
dollars, had been contributed, intended to educate public opinion
on this matter.
Mr. VREELAND. I hope the gentleman from Pennsylvania
is correct, but I am afraid the story has been greatly exaggerated. I have understood that the league has been very insufficiently supplied with money to carry on this purpose. I
hope the bankers will be willing to contribute with the other
business interests of the country in trying to educate the people
along scientific lines of banking and currency reform. Certainly the country needs it badly enough. In the great countries beyond the sea legislatures make economic laws, guided
by the advice of experts. In our country legislatures are
guided by the voice of public opinion, and we all understand
that in so great and complicated a matter as a banking and currency system for a Nation like ours a tremendous amount of
organized and systematic effort must be made in order to get
an intelligent public opinion in favor of such legislation.
In endeavoring to procure such legislation the bankers should
take the lead, because it is their business or profession. They
ought to feel the disgrace of suspending payment, of putting
themselves in shape where they may be proceeded against for
insolvency under the law of the land, because they are obliged
to inflict enormous losses upon their customers through their
inability to perform their proper functions as banks.
Mr. PRINCE. Will the gentleman yield?
Mr. VREELAND. Certainly.
Mr. PRINCE. Do I understand that in this free banking system in the United States the banks are political organizations?
Mr. VREELAND. No; I understand just the contrary. I
will say to the gentlemau from Illinois that the national banks
are not political organizations. They are owned by men of all
political parties and they do not take part in politics. I think
we have a statute on the books forbidding national banks to
make contributions for political purposes.

Now, Mr. Chairman, what is our present system? In order
to correct it we must first find out what is the matter with it.

Why does it shut up every 8 or 10 years, while the country sits
down and waits for confidence to come back to the people? I
can not go into this deeply. I can only touch on two or three
of the principal defects of our system. I refer gentlemen to the
report of the Monetary Commission for a fuller enumeration of
the details of the trouble.
A few days ago Andrew Carnegie told a special committee of
this House that he thought our system was the worst in the
world. In some respects he is right. It is a system which compels panic. It is inefficient and costly during normal times.
But in some respects, I believe, it is the best system in the wrorld
to meet the needs of the people of the United States; We have
25,000 or 26,000 banks of all kinds—7,200 national banks and
over 18,000 State institutions. We have a free banking system
in both State and Nation; that is, we do not have to go to a
legislative body and obtain a charter before starting a bank.
We simply apply for a charter under conditions which the law
lays down. Our banks are local and home owned. The people
of any city or town can get together; they can associate their
capital; they can start a bank in that city or town, which exists primarily for the benefit of that community. They elect
as their officers men in whom the community has confidence.
We have more individual banking units than all the rest of the
world put together. This has been one of the great reasons for
the upbuilding of this country. We have nearly 40 per cent of
the banking resources of the world. We have more gold than
any other two great countries in the world.
In contrast to our system, all the other great countries have
branch banking. Their systems consist of a few great banks,
located largely in some financial center, covering the country
with their branches. Canada has 29 banks, not one of them
owned west of the longitude of Buffalo. England has 40 or 50
great joint-stock banks, all but two of them in London. France
has only three great commercial' banks besides the Bank of
France, covering the country with their branches. Much may be
said in favor of branch banking from an economic standpoint
but our people would never accept i t Under branch banking
in 20 years a few great banks in a few of our great cities would
own the banking system of the country. Our people are satisfied with our system of home-owned banks. We do not desire
to change it in that respect.
But the great trouble with our system is that with our 25,000
banking units there is nothing to bind them together. With 40
per cent of the banking resources of the world, we are unable
to unite the strength of our resources in time of need. The
trouble with our system is that it falls apart in time of severe
stress and strain. There is no cohesion in our system. We
have no system under which our banks can cooperate in warding off panic and disaster. We have no keystone to our banking arch. Our system is all right when the sun shines and
skies are clear, but when trouble looms up on the horizon it is
unable to protect itself or its customers. Every bank commences looking after its own interests. The instinct of selfpreservation impels every individual banker to try to protect
himself regardless of anyone else, even his customers.
The keynote of banking reform is cooperation among the
banks, so that their united resources may be used to ward off

distrust and lack of confidence among the people. Give them
the power of Tcooperation under a law which tells them exactly
when and how they may cooperate.

In order to enable 25,000 banks, scattered over a continent,
to cooperate for the general good we must have leadership—
leadership under the regulation of law, leadership under the
searchlight of publicity.
Let me give you an example of what I mean. In 1892 one
of the great banks of the world, the Baring Bros., of Louden,
was in financial trouble, and the news spread about London that
this great bank, whose business reached into every civilized
country, was about to close its doors. But they have leadership
under the law in Great Britain. The Bank of England came
to the assistance of Baring Bros.; they borrowed fifteen millions
of gold from the Bank of France; they gathered around them
the great joint-stock banks of London; they made a plan for
taking over and assuming the liabilities of Baring Bros., and a
great panic was averted. The great bank was saved and is
doing business to-day.
In 1007, during our money panic in the United States, we
lacked leadership under the law, leadership that would be
recognized and responsible to the people, and in the midst of
that crisis in the city of New York, where the panic raged, Mr.
Morgan, a great financier and business man, was called by common consent to assume the leadership and endeavor to stay the
panic. It was said to the American people that in order to
stay the panic, in order to relieve one of the great banks of
that city and prevent its failure, it was necessary that the
United States Steel Co. should absorb one of its great rivals. I
am not here to say that it was necessary or that it was not
necessary, because I have no knowledge upon the subject, but I
do say that in the course of the action said to be necessary to
stay the panic it was a great misfortune that this competitor of
the United States Steel Co. was absorbed by that institution,
because millions of our countrymen have been led to believe the
statement, made by prominent men, that that panic and the
distress of the people were made the excuse for absorbing the
Tennessee Coal & Iron Co. by the United States Steel Co.
We should have leadership that the people know is disinterested, that is disassociated from money making, that is
responsible under the law for the performance of its duties.
When the Bank of England or the Bank of France raises its
rate of discount, it gives notice of conditions in business which
all the people can heed and accept.

Nearly every man who takes up the study of banking and
currency legislation in this country starts out with the idea
that elasticity in our cash is the main proposition. That results
from our experience with money panics. But under a scientific
system we never should reach the point of having a money
panic. In fact, the better banking and currency system a country has the less of actual cash they use and the more they use
different forms of credit representing cash.
Elasticity of cash is important in our country, but elasticity
of credit is of vastly greater importance. Ninety-five per cent

of our business transactions are clone with instruments other
than currency. The banking part of our problem is vastly more
important than the currency part of it, and yet they are closely
bound together.
Elasticity of currency is important in a country which produces eight and a half billion dollars' worth of crops annually.
It is stated that we need from one hundred and fifty to two
hundred and fifty millions of actual cash to move our crops, and
that we do not need cash to that amount during the winter and
spring. Everyone knows that there is no elasticity in our system. First, we have a shortage of money, and then we have a
redundancy, and one is about as bad as the other.
Where should we get this extension of cash needed to move
our crops? We should get it from the expansion of our banknote issues, with gold and short-time commercial paper as a
basis. That is where every other great nation gets it, but,
unfortunately, the expansion of our bank-note issues in this
country bears no relation whatever to the needs of business.
We all know that our bank-note issues are increased or decreased solely as a matter of profit to the national banks, that
profit depending largely upon the price of Government bonds.
What is our money made up of in this country? And I use the
word " money " in its broadest sense. First, we have gold—
about one thousand seven hundred millions. But gold is not a
money which we can import and export to supply elasticity to
our system and to move our crops. It is rather the basis of
bank-note circulation to supply our needs. Next we have silver—about $740,000,000. That amount is fixed and unchangeable. We have greenbacks and Treasury notes amounting to
about $350,000,000. That is absolutely fixed. Then it is evident
that if we have elasticity in our currency it must come and
should come from our bank-note circulation safely anchored to
gold. Our bank-note circulation should increase when business
increases and decrease in the same way.
Suppose the First National Bank of Washington is considering the question of issuing $100,000 of additional bank notes,
will the officers say to the directors of the bank that the cropmoving season is coining on and the country is going to need more
money for the purpose of moving the crops, and therefore the
bank should buy more bonds and put out $100,000 more of circulation against them? Do they say that? Not at all. They
are not charged with the responsibility of moving the crops.
They are running their private business for the benefit of their
stockholders. What do they say? They say, "At the present
price of Government bonds will it be profitable to this bank to
buy $100,000 worth of bonds and issue bank-note circulation
against them? Will it pay the bank? If it does, we will do it.
If not, we will not do it."
The mere statement shows that this is a vicious system, one
that depends not upon the business of the country, but absolutely upon the profits of the banks which have the right to
issue these bank notes. We never can have elasticity so long
as we have a system resting upon bonds.
Our bank-note circulation should rest upon gold and upon the
consumable products of the country—products of the farm and
of the factory on their way to market—and when they have
been marketed and paid for the bank notes have performed their
function and go out of existence until needed again.


Mr. Chairman, there is no other nation in the world that
bases its bank-note circulation upon bonds. The Japanese,
because of their great admiration and liking for the United
States, adopted our national-bank system along about 1882.
But the Japanese are a shrewd and practical people, and they
soon saw it was a poor system, unsuited to the needs of business. They appointed a royal commission, and as a result of
their report they abolished our banking system and adopted the
system which every other great country on earth uses except
our own.
Let me give you some examples of the movement of our banknote circulation in years gone by. You remember that after
the resumption of specie payments in 1879 the United States
started out on a magnificent career of expanding business.
From 1881 to 1893 business advanced by leaps and bounds, increasing more than 100 per cent in many lines. That was the
time when our bank-note issue should have expanded, securely
anchored to gold, to meet the rising needs of business. What
did happen? Did our bank-note issues increase? Far from it.
You will find that it actually decreased during those years
nearly $300,000,000. What an eccentric system this is. In 1893
we had a money panic, followed by a period of hard times. The
banks were stuffed with money for which there was no need;
they did not know what to do with it. During the period from
1893 to 1897. when business was prostrate and the country
was full of idle money, this eccentric system of ours increased
our bank-note circulation nearly $100,000,000.
We must divorce our bank-note circulation from United
States bonds or any other kind of bonds. Its volume must
depend upon the needs of the country, resting upon and safeguarded by from 33$ per cent to 50 per cent of actual gold,
and the balance of commercial paper made by individuals and
corporations of undoubted credit and guaranteed by solvent

The United States has no reserve system worthy of the
name. As a method of safeguarding our bank deposits in
time of stress it is a total failure. Our reserve system has
proved to be the greatest defect in our monetary system, permitting and even iuviting money panics. Instead of providing
for our safety, our present system of reserves is a standing
menace to the banks and to the country. As I have before
stated, no bank in the country is able to protect itself against
its deposit liabilities unless it locks up its money in its safe,
and then it would not be a bank, but a safety deposit storage
What is our reserve system? We have more than 15 billions
of deposits in the banks of the United States, largely payable
on demand. For the purpose of supplying depositors with cash
when called for. the national banks are required by law to
keep reserves of from 15 per cent to 25 per cent of their
deposits on hand, and cash reserves of from 6 per cent to
25 per cent actual cash in their vaults. The laws of various
States differ, and, on the whole, State institutions keep somewhat less reserves than the national banks. I suppose we
have in cash altogether in all of our banks something like

9 per cent or 10 per cent—let us say nearly a billion and a half
dollars, that the banks carry as reserves against this enormous
deposit liability. A billion and a half dollars is an enormous
sum of money. A billion and a half dollars in reserves,
properly placed where it could be used in unlimited quantities
wherever and whenever actually needed, would be much more
than sufficient to meet any emergency that could possibly
Turn again to the experience of the other great countries
of the world. There is no one of them where the law requires
that any cash reserve at all shall be kept in the banks. Go
to England, Austria, France, Germany—any great country
abroad—not one of them by law requires a bank to keep a dollar of reserve on hand. What do they do with their cash
reserves—which, of course, any good banker would maintain,
whether the law requires it or not? Aside from mere till
money—the actual cash needed from day to day—they keep
their money in what they call their central bank. They make
a reservoir of their reserves. They put them literally into
one mass, where they can be used here, there, anywhere, whereever needed and in any amount. We are the only country in
the world where the law requires the banks to keep great cash
reserves in their vaults, and we are the only country in the
world where the system breaks down every time the strain
becomes severe enough. What do practical, intelligent Americans want any more than the mere statement of that fact
to convince them that our reserve system is a delusion and
a snare? The effect of our reserve system is almost to compel panic. Warned by previous experience, every banker in
the United States to-day has his eye on every point of the
financial horizon, trying to scan the future and trying to protect himself.
Suppose to-morrow there should be danger of war, due, perhaps, to some racial disturbance on the Pacific coast. Then it
is likely that 10,000 bankers from here to the Pacific coast
would all at once and in the same mail draw on New York
and Chicago for their funds there. Every one of them, regardless of the interests* of the country as a whole and driven by
the instinct of self-preservation—every one of them would try
to get hold of every dollar that he could and put it in his
vaults, not because he would need it, but because he fears
that he may need it; and when the time comes that he actually
does need it he may not be able to get a dollar from any place
on earth.
The great banks in the centers can not meet such enormous
demands for cash any more than a single bank could pay if a
large proportion of its depositors appeared unexpectedly and
demanded their money. No system can stand such a strain as
We have less than three and a half billion dollars of money
of all kinds in the United States with which to pay deposits
of $16,000,000,000, besides the billions of dollars of debts
of other kinds, and yet we have more money of all kinds and
more money per capita than any other nation. It would be
impossible to devise a system under which we could suddenly
brush aside the 95 per cent of credit instruments used in the
place of cash in doing our business and attempt to go upon a

basis where cash only could be used. Under the systems abroad,
no matter what the trouble may be, no banker would draw from
the central reservoir for funds until he actually needed them,
resting secure in the certainty that in case of need a solvent
bank with liquid assets could obtain all the funds needed.
For 50 years or more this system has worked in the countries
abroad and they have been free from money panics.
Our reserves are scattered around in 25,000 piles throughout
the country, differing in size, of course, but every bank in the
country having a portion of them. Let me illustrate the weakness of our system. Suppose we should become engaged in war
with Great Britain—an almost unthinkable supposition, and I
use it merely for the purpose of argument—and suppose that
under the cover of its great fleet Great Britain should land
200,000 regulars in Canada for the invasion of the United
The United States, with its 90,000,000 people, would issue a
call for a million volunteers to add to its Ilegular Army of less
than 100,000 men. But suppose that instead of concentrating
our strength in the best position for defense or attack, presumably upon or near the border, each one of our 48 States should
say, " We will put our quota of troops on our State border, and
when the British Army approaches our State line we will fight
them and endeavor to beat them back." And so New York
would put its quota of 100,000 men on her northern border, and
South Caroliua would put her quota upon her border, and Texas
and California and Colorado and Georgia would put their quota
each upon the frontier of the State, and so we would have our
3,000,000 volunteers divided into 48 groups scattered across
a continent. What sort of defense would we be able to make?
The British would advance and overcome the troops of New
York because they would outnumber them and the troops of no
other State would come to their support. And then they would
march on and destroy the next quota, and the next, and the
next, and in the end our Army of a million men, strong enough
to take the invaders by the nape of the neck and throw them
into the sea, would be overcome and destroyed through lack of
cooperation and concentration of their strength. You say that
would be an idiotic proposition. It is, and yet I say to you, Mr.
Chairman, in all seriousness that that is the system which prevails to-day as to the reserves of the banks of the United States
against their enormous deposit liabilities. That has been their
history in every panic which we have had.
Whenever panic has broken out in any part of the country,
instead of being able to mass our reserves and stop the panic
before it has a chance »to spread, we not only do not go to its
relief, but actually try to draw away every dollar that we can
from the city so attacked by lack of confidence and mistrust.
Our reserve system compels panic whenever any clouds are in
the finanical sky. It compels every banker to turn his hand
against his neighbor and to fight for self-preservation.
When the United States Treasury has been full to overflowing, as in some years gone by, that has helped us out; and
many a year we have been saved from a money panic by money
from the United States Treasury deposited with the banks at
the commencement of the crop-moving season. To-day the
Treasury is not in condition to meet these demands; and the

Treasury ought never to be in condition where it is so overflowing that it can take money and deposit it with favored
banks throughout the United States. We ought never to depend
upon conditions which may happen to exist in the National
Treasury to supply us with money to avert panic.

To-day the banks of New York City act as a central bank for
the country, and five or six of the great banks of New York
hold three-fourths- of the reserves of banks deposited in that
city. Under existing conditions the banks of New York are
charged with the responsibility of maintaining credit and of
maintaining cash payment in the United States. New York
holds the ultimate reserves of the country. The surplus money
of banks may be deposited in San Francisco or New Orleans
or St. Louis or Chicago, but ultimately those not needed at
home find their way to the banks of New York. This is true
because New York has the only real call market in the United
States. I t is a real call market 9 years out of 10, but in the
tenth year they often call in vain.
The banks of New York City are not equipped by law to perform the duties of holding the reserves of the banks of the
United States, nor of maintaining the credit of the country. I
say this with every assurance, because it does not depend upon
my statement. It is a matter of history; whenever in the past
great financial strain and stress have been put upon them they
have broken down under the burden and have been obliged to
suspend cash payments and take refuge behind the walls of
the clearing house, and that means the suspension of cash payment practically throughout the United States.
They are not fitted to perform the duties of a central bank,
and it is a legislative impossibility to give them powers which
would enable them to perform this great function. The banks
of New York are great money-making machines. That is what
they are organized for—to make as much money for their stockholders as possible. The president of a great New York bank
is successful if he can pile up great deposits and earn great
dividends for his stockholders. Expenses in New York are
large and competition is keen, and a New York banker can not
afford to keep more than 25 per cent of his deposits on hand
in cash, which the law requires. Indeed, it rarely happens
that all of the New York banks have on hand the requisite
25 per cent. I will guarantee that, year in and year out, you
will rarely find that they will average 1 per cent above the 25
per cent they are obliged to keep on hand in cash in their vaults.
In 190% at the commencement of the crop-moving season, the
three central reserve cities—New York, Chicago, and St. Louis—
had 25.4 per cent reserves on hand. That is, they had fourtenths of 1 per cent above the legal requirement at the commencement of the crop-moving season. If a sudden call had
come upon them for $50,000,000 in money, it probably would
have meant suspension of cash payment and the issuance of
clearing-house certificates.
I have no criticism to make against the banks of New York.
They are great institutions, admittedly well managed from the
money-making standpoint. They have doubtless performed
their duties in earing for the ultimate reserves of the country
as well as they could under existing law. But I insist and ex31082—10G11

perience has shown that they are not equipped and we can not
equip them by law for safely carrying the reserves of the United
{States. They can not afford to carry great reserves of from 40
to 60 per cent when business is good> in order to release them
when business is bad. We can not equip them by law with the
power of additional note issue based on gold and commercial
paper. It is a legislative impossibility.
For these reasons, under our present system we are constantly
exposed to having our system break down, as it has so many
times in the past. Every time it breaks down it is more likely
to break down in the future.
The lesson from all this is that we must have an institution
to hold our reserves which is not a money-making institution.
The idea of profit niust be eliminated from its management.
We must have an institution which can carry 45, 50, or 60 per
cent of reserves. We must have an institution which we can
endow for the benefit of the whole business of the country with
the function of issuing bank notes in any amount needed, provided -they *are based upon from 83J to 50 per cent or even a
greater percentage of gold and the balance upon commercial
paper indorsed by solvent banks.
Let me. give you an example: During the panic of 1907 our
banks, at great expense, imported over $100,000,000.of gold from
abroad. That is a small sum compared with $15,000,000,000 of
deposits, but it helped a great deal in working upon the imaginations of the people and helping to restore confidence. When
that $100,000,000 of gold reached our shores it was not worth a
penny more to pay off the debts of the banks than greenbacks or
national-bank notes. But suppose that $100,000,000 in gold had
gone to Germany. Immediately, with that $100,000,000 in gold
as a basis for one-third and the remaining two-thirds commercial paper indorsed by banks, the great German. Reichsbank
would have been able to create $300,000,000 in cash or credit
for the relief of that country. Even upon a basis of 40 per cent
gold the National Reserve Association, which we are proposing to
create, would have been able to turn that $100,000,000 of gold
into $250,000,000 to pay the debts of the country. That is the
reason the banks of New York City are not equipped with the
proper function to enable them to perform the duties of carrying the ultimate reserves of our banks.

Any banking and currency system in the world worthy of the
name rests upon confidence. I do not mean blind confidence, but
I mean intelligent confidence which is familiar with every detail
of the system and knows that it will stand up in time of need.
I have shown that we have less than three and a half billions
of money of all kinds against sixteen billions of deposits, and yet
we have more than sufficient money to meet the necessary wants
of the people. It is only when a multitude of people demand a
great amount of money against their deposits for which they
have no need that our system1 breaks down.
We must inspire confidence in the individual depositor and in
the banker that we have a system which will furnish them
money in any amount whenever they actually need it. Then
they will not break down our system by demanding money in
great quantities for which they have no need, but only fear that

if they wait they may not be able to secure it when they do
actually need it.
The trouble with our present system is that the bankers themselves have no confidence in it. The bankers themselves are the
great hoarders. The bankers themselves constitute the greatest
menace to our system. I do not blame them for i t ; it is the
fault of the system. It is because we have no system of cooperation through which our bankers can mass together their
mighty resources for common defense.
We have all heard of the old lady who goes to the bank window in time of financial excitement and says to the teller, " If
they have her money all safe she don't want it, but if they have
not got it she wants it right off."
Mr. Chairman, that illustrates the principle upon which the
whole banking fabric in every country in the world rests. The
bankers in the United States or elsewhere are just like the old
lady. If they know they can get their money in New York or
Chicago or New Orleans, then they do not want it; they go on
about their business and keep the wheels of business turning.
But instil in their minds the slightest fear that they can not
get it and they all commence trying to get it home.

Mr. Chairman, I want to give you two or three instances of
what confidence in a banking system means, confidence on the
part of the banks and of the people.
A subcommittee of the National Monetary Commission visited
France during our investigation. We went into a great bank
there called the Credit Lyonnaise. It was then, I believe, the
greatest bank in the world. It had something like 14,000
employees on its pay roll at its head office and at its branches.
It had $75,000,000 or $80,000,000 of capital and surplus and
over $300,000,000 of deposits. It covers France with a network
of branches; the governor of this great institution was very
affable and considerate in giving us all information desired. I
asked him: " How much cash do you carry in your vaults and
in the Bank of France against these great deposits? " He called
in his bookkeeper, and told us that on that morning they had in
actual cash in their vaults and in the Bank of France about 5$
.per cent of their deposits, the greater portion of it in the vaults
of the Bank of France. I said to him: " Do you ever have runs
upon banks in France, and do your people ever become excited
about money matters?" He answered: " W e have not had a
run in a good many years; but the French people are the most
excitable people on the face of the earth in relation to money
matters. No other people compare with them in that respect."
We said to him: " With the most excitable people on earth,
how do you feel safe in carrying this small reserve of 5i per
cent against these great deposits of $300,000,000?" The governor said: " Gentlemen, to-morrow morning, in case of need of
cash, we can take out of our vaults $20,000,000 worth of such
paper as the Bank of France accepts, as decreed by the great
Napoleon more than a century ago; that is. paper having upon
it three solvent names. We can take twenty millions of that
paper, we can take fifty millions, we can take one hundred
millions, we can take one hundred and fifty millions of that
paper from our vaults over to the Bank of France and bring


back the notes of the Bank of France, good as gold from one
end of this country to the other. If I could not do that I could
not sleep nights; if,, I could not do that I would not be governor
of this institution.
That illustrates the confidence of a great French banker in
their system and of the French people in their system—that it
will supply them money in any amount whenever legitimately
needed. The result is that France has not had a money panic
in a century. Perhaps our bankers and our people are braver
than they are, or else we have become accustomed to the disgrace of a great country suspending cash payments because our
bankers and our people seem to be able to sleep nights, although they know we have no place on earth to turn our credits
into cash in time of need.
Mr. FORNES. In France they hold in their vaults 1£ per
cent and about 4 per cent in the Government bank, or call it
6 per cent in all. In our central reserve cities they must keep
25 per cent in cash. Then 19 per cent more of their money
than ours is in use, or, in other words, the public has the benefit
of using that money by borrowing it from the bank. In this
country we are at a disadvantage, then, of 19 per cent in keeping idle money on hand according to our system. Is that not
Mr. VREELAND. The gentleman is absolutely correct. I
have been trying to illustrate the point, that with the enormous cash reserves we carry, the extravagant and needlessly
great reserves, which are a loss to the people of the country
and to the business of the country, in spite of that we are
unable to prevent our credit system from breaking down and
precipitating the country into panic whenever a great strain
comes upon it.
Mr. ADAIR. Our national-bank system requires a reserve of
only 15 per cent. Is that not true?
Mr. VREELAND. That applies to what we call country
banks. The three central reserve cities—New York, Chicago,
and St. Louis—must at all times have 25 per cent of their
deposits in cash in their vaults. The reserve cities must keep
25 per cent reserve, but may keep one-half of it in deposits
with central reserve cities. The country banks must keep 15
per cent reserve, but may keep 9 per cent with reserve cities.
Mr. Chairman, let me give you another example of what confidence in a banking system means. I have already referred to
the fact that during the panic of 1907 this great country of ours,
with its enormous banking and commercial resources, was
obliged to turn to a little island across the sea for help, and we
commenced importing gold from England to relieve our great
necessities. When we commenced to import gold the Bank of
England had in its vaults altogether about $165,000,000 in gold.
That was all they had. What did it stand for? What was it?
It stood first for the accounts of corporations and individuals
which keep their accounts with the Bank of England. It stood
next for the gold against which the bank notes of England are
circulated among the people. Besides this, it stood for the
reserves of all the great joint stock banks of England, because
the banks there keep only till money in their own vaults and
keep the great bulk of their reserves with the Bank of England. Driven by our necessities, we commenced to draw upon

that gold. We drew away $5,000,000 a week, $10,000,000 a week,
$15,000,000 a week, until we had drawn from the vaults of the
Bank of England more than $100,000,000 in gold. What did
they do? What happened over there? They had $165,000,000
in gold, and we had drawn away more than $100,000,000 of it.
Could there be a greater example of the confidence of the people and of the bankers in their system of banking and currency?
Nothing happened. Did the holders of their bank notes, seeing
the gold against which they were issued disappear, rush in and
demand payment? Not at all. Did the business people demand
payment of their accounts? Not at all. Did the people and the
bankers of England become alarmed when they saw the gold
reserves against their deposits disappear in a yellow stream
across the Atlantic? Did they rush in and try to draw out the
reserves? Not at all.
The great bank simply commenced to raise the rate of interest—raise the discount rate—3 per cent, 3£ per cent, 4, 5, 6, 7
per cent, 7£ per cent, I think, and they drew gold from 23
different countries of the world to take the place of that which
we had drawn away from them; and at the very moment when
we were drawing away from this little hoard of the Bank of
England we had in the Treasury alone of our great country
more than a billion dollars in shining gold, more than England
and France together possessed. It has been truly called the
greatest and most useless hoard of gold in the world.
Under any modern and scientific use of that great golden
treasure the United States could sustain itself against any
possible financial contingency which could arise.
Let me give you one more, and a more recent, example of
what a modern banking and currency system can do under great
stress. We all remember that last fall for many months war
was supposed to be imminent between France and Germany.
You know that we would not have been surprised any morning
to read that troops were already on their way toward the
borders. Germany is a country not to be compared with the
United States in accumulated wealth or strength of banking
capital and resources. At that time when war seemed imminent
Germany owed to France and England, mostly to France, about
one hundred and fifty millions of money, payable on demand, and
payment of this money was demanded, relentlessly and remorselessly. Nearly $150,000,000 demand money was called within
six days, and, Mr. Chairman, within six days, with their modern
banking system, that great country paid more than $145,000,000
to Paris and London, and the bank-note issue of the great
Reichsbank during those six days increased $154,000,000. With
their modern system they paid this great demand made upon
them and war supposed to be imminent with every day that
came along.
What would have happened to us, gentlemen, in like circumstances? How would we meet a sudden demand for $150,000,000
or $100,000,000 or $50,000,000, if such a demand were made
upon us, with the danger of war lurking in the background?
When President Cleveland sent his famous Venezuela message
to Congress a panic ensued on the stock exchange and it required a great effort to prevent it spreading over the country,
because of the mere possibility that war might grow out of it.
Other examples could be given. They show the confidence of
the people of those countries and of the bankers of those coun31082-—10G11

tries in their banking system. They show why those countries
have ceased to have money panics. They illustrate how the
liquid assets of the solvent banks can be turned into cash or
credit to meet any demands made upon them. The knowledge
of the banks and of the people that they can always get money
or credit at some rate of interest prevents them from asking
it until they actually need it in the ordinary course of business ;
and the weekly rates of discount published by the central banks
abroad are great business barometers which all may read and
believe, knowing that they are not based on selfish or moneymaking interests.
I will not stop to talk longer about the defects of our system.
There are many others, and they are important. There is a
lack of a discount market and any form of standardized commercial paper. There is our antiquated and expensive subtreasury system. There is the lack of power of our banks to
finance the cotton and the wheat which we send abroad. The
coffee which we purchase from Brazil is financed through London or German banks. The report of the Monetary Commission
enumerates a large number of these existing faults in our
system. The country is generally agreed upon that point.
Then, how shall we correct it? The National Monetary Commission has proceeded upon the theory that we will disturb as
little as possible the business of the existing banks, that the
wTork shall be one of evolution and not of revolution.

Mr. Chairman, there is no field of human endeavor in which
experience is of so much value as in the financial field. Here
it is especially true that an ounce of experience is worth a
good many pounds of theory- Why should we not turn to the
experience of the world? The great countries across the sea
have had hundreds of years of experience in trying out financial
theories. Suppose the steel mills of Europe were able to make
steel of much better quality than the mills of our country. If
that were true, every greyhound that crosses the sea would be
crowded with experts going over to learn the secrets of their
manufacture. Why should we not profit by their financial experience? When we learn that the great countries of Europe
have not had a money panic in from 50 to 100 years why should
we not endeavor to understand the principles upon which their
systems rest and profit by them?
Is it not a remarkable fact, Mr. Chairman, that all of the
other great independent countries of the earth, as a result of
their longer experience, have adopted practically the same
system of banking and currency? I mean by that the principles upon which their systems rest are the same, although
their methods of applying those principles may widely differ.

Sometimes we hear people talk as if there were a great
variety of banking and currency systems in the world, and that
we have only to pick out the best.
Why, Mr. Chairman, in all the history of this world since
civilization commenced there have been but two systems of
currency found that have stood the test of experience and are
in existence to-day. Of course, I mean outside the United
States, where, as has been well said, we have a series of banks
but no banking system.

One is the system which prevails in Canada and Scotland,
and the other is the system which prevails in every other great
civilized nation on earth except the United States. Under the
system prevailing in Canada and Scotland they have a comparatively small number of large banks—Canada has 29, Scotland
8—which are given the right to issue bank-note circulation
against their assets and the right to establish an unlimited
number of branches throughout the country. Each one of these
large banks endeavors to put out all of its notes possible, on account of the profit there is in it for them. In order to keep out
as many of its own notes as possible, it sends in the notes of all
other banks for redemption, the same as we, in our banks, return checks to the banks upon which they are drawn. This
competition between the banks trying to put out their own notes
and to retire the notes of the other banks prevents their volume
of bank notes from becoming either redundant or deficient. The
banks collectively can keep out whatever volume of bank notes
the business of the country requires. The Scotch-Canadian system rests upon the element of profit to the banks and can only
be used successfully under the branch-bank system.
In every other civilized country they use the central system;
that is, their bank-note issue is centralized in one institution,
under Government regulation, and the element of profit is
largely taken out of it, and the business of the country automatically decides how much currency is needed in business.
Business indicates its need by presenting its commercial paper
and asking in exchange for it bank notes or credit.
We can not adopt the Scotch-Canadian system. Why? We
can not adopt it because it is based upon branch banking, and
because our present system of individual banks, owned in each
community, is too firmly established in the regard of our people
to admit of change. An attempt to establish that system with
us would simply mean a great inflation of the currency and
little more elasticity than we have at the present time, provided
the notes issued were considered as good as our present bondsecured notes by the bankers and by the people. Under our
system of banking it would fail in its redemption features.
What interest would 18,000 State banks have in selecting out
and sorting and doing up into bundles and shipping away by
express for redemption bank notes issued under the Canadian
system by our thousands of individual banks, provided our
banks had entire confidence that the notes were good? We can
not adopt the Scotch-Canadian system unless we adopt branch
banking with it, and even if we could it would afford no relief
to 18,000 State banks.
Then, as a result of the examination of the experience of all
history, we find ourselves reduced by a process of elimination
to the other method, of having notes issued by one central authority under regulation of law. Commencing with England
in 1844, every other great independent country in the world has
taken away from individual banks the right of note issue and
given it to a central institution under government regulation.
France took the same action in 1S48, Belgium in 1850, the
Netherlands in 1860, Spain in 1874, Germany in 1S75, Austria
in 1878, the Balkan States in 1877, Russia in 1879, Japan in
1882, Portugal in 1891, Norway and Sweden in 1897, and Switzerland in 1907; and, Mr. Chairman, in considering these historical
facts, we must remember this: Most of these countries have

banking systems consisting of a few large, well-managed banks,
great joint stock banks like those of England, Germany, and
Austria, that are able to employ the best talent that can be
had and pay large salaries to men of the greatest ability in
financial affairs. Under these circumstances the issue of asset
currency by individual banks would be infinitely safer than in
the United States, where we have 25,000 large and small banks
scattered over a continent.
As a result, then, of the experience of the whole world,
extending over a great many years, tested in countries doing
a great volume of business, meeting the different conditions in
different countries, we find two great financial principles which
every independent country on earth except ours has adopted.
First. The centralization of bank-note issue in one institution under government regulation and control, such bank notes
resting upon gold and commercial paper indorsed by banks,
and automatically increasing and decreasing according to the
needs of business.
Second. The mobilization in part of the cash reserves of
banks against their deposits in one institution, such institution
carrying large reserves and having the right, under regulation
of law, to expand its note issue and credit liability based upon
gold and commercial paper.
At the commencement of the panic of 1907 in New York City,
the Secretary of the Treasury fortunately had about $30,000,000
which he could deposit in banks, largely in the city of New
York. Had it not been for this cash, immediately available,
aided by the work of some of the great bankers of New York
City, this country would have had such a financial smash up
as never before happened in history.
I have said that the banks of this country carry nearly a
billion and a half dollars in cash reserves. Suppose when the
Knickerbocker Trust Co. closed its doors, or when the surging
mass of excited depositors was clamoring for its money, we
had been able to take one hundred millions or two hundred
millions of this great cash reserve and throw it into that
panic-stricken city; it would have put out the panic like throwing a bucket of water on a match. It never would have passed
outside the city limits. I am not sure but that even the knowledge that such a great cash reserve existed, and which could be
used, would have been sufficient to stay the panic without
actually using a dollar of it.
Mr. Chairman, I am going to venture to say that I do not
believe that any intelligent man can take up the study of banking and currency, study it thoroughly, examine the experience
of our own and of the other great countries of earth, and arrive
at any other conclusion than that we must have a mobilization
of our reserves and centralization of our note issues under some
form of organization.

Mr. Chairman, what do we learn from all of these experiences
which I have cited in the countries beyond the sea? Do I
mean that we must set up a central bank here fashioned after
the central banks abroad? Do I mean that we should bring to
life the central bank of Andrew Jackson's time? Do I mean
that we should set up here a bank like the Bank of France or
the Reichsbauk of Germany? I mean none of those things.

The lesson that we should learn from experience is that we
should adopt these financial principles, which have stood the
test of experience for a century among great populations, in
carrying on great business. We should adopt these principles
and build around them the machinery to adapt them to American conditions.
Mr. Chairman, principles know no State lines; they know
no National lines. This great body of ours can pass a thousand
resolutions and not change a single law of health, nor can it
change one single law of economics. We are proposing to take
principles that have been found safe and practicable and adapt
them to the different conditions and needs which we have here
in the United States. The Bank of France.or of Germany
would not be suitable for this country. They are perfectly
adapted to the countries where they are. People over there are
accustomed to being governed both financially and politically
from one center.
The people of England and the people of France are perfectly
content that there shall be a financial concentration of banking
capital and a concentration of management in London and
Paris. We are not accustomed to that here, and it would not
suit the genius of our people. Many of our people believe that
there is already too great a concentration of financial power in
one or two great centers. We believe that the control of our
banking resources should to a greater extent be decentralized.
Our country covers a continent. Some of our States are larger
than England or France. Different parts of the country are unequally developed. For all of these reasons no central bank
which ever has existed or which is in existence to-day would be
suitable for the needs of the United States.


What we want is an American institution. We want to adopt
financial principles tested by experience, and upon them erect
an institution adapted to the needs of the United States. And
I want to say to you, Mr. Chairman, that it is the belief of
thousands of our countrymen, who have reached that opinion
after disinterested study, regardless of the party to which they
belong or the section of the country in which they live, that the
plan proposed by the National Monetary .Commission would
create an American institution which is not only economically
sound, but one in which all sections of the country would have
their proper and equal say as to the management of our financial affairs.
We have built up an institution, using the framework of our
country as its model, building from the bottom up, the town, the
county, the State, and the Nation. The individual local bank
corresponds to the town, the local association of banks which
we create corresponds to the county, the 15 branches or districts into which we would divide the country correspond to the
States, and the National Iteserve Association at Washington
corresponds to the National Government.

I must hurry along, and I want to go over briefly the main
features of the National Reserve Association which we are proposing to establish. I can only stop to give you a general idea
of it without going too much into detail.

Mr. ADAIR. Before the gentleman takes up that feature of
the question I would like to ask rhim how many panics we have
had during the last 50 years w hich he believes to have been
money panics, or which he places in the class of money panics.
Does the gentleman believe that more than one panic could
properly be termed a money panic—that of 1907?
Mr. VREELAND. What I want to impress upon the minds
of everyone is that in our country, no matter what the cause
of a business or industrial depression may be, no matter what
the scare is produced by, it frequently ends in a money panic.
The panic of 1873 is said to have been caused by excessive
railroad building—tying up too much of our available capital
in railroads—and because we were getting down from the inflated values of war times toward a gold basis. This would
naturally result in depressed business and what we call " hard
times." Houses like Jay Cook & Co., whose credit was too much
extended, would have to fail; but why should the failure of
Jay Cook & Co. produce runs all over the country upon banks
which were not concerned in railroad building and which were
solvent and safe? That, as I have endeavored to show, was
the fault of our defective banking and currency system.
It is the same with the panic of 1893. Republicans generally
would say that the industrial panic was caused by the election
of Mr. Cleveland in 1892 with both branches of Congress, which
meant changing our tariff system to one of tariff for revenue
only. Others would say it was caused by the silver-purchasing
act. Anyone would concede that a change from one tariff system
to a lower one would mean a slackening of business throughout
the country until it could be found what the results of that
change would be. Merchants would buy less goods, factories
would run on shorter time, and people would economize until
they could find out the effect of the change. That would mean
for a time a depression in business—less goods manufactured
and bought and sold.
With a sound banking system it should mean nothing more
than that. But with us this state of depression was rapidly
followed by runs upon solvent banks throughout the United
States, the closing of hundreds of banks which could not immediately respond with cash, general suspension of cash payment throughout the country and the issuance of clearinghouse certificates, and an absolute destruction of confidence in
the minds of business men and'of the people. This is what I
mean by a money panic. This is where we differ from all of
the other great countries. I am not claiming that we can prevent business depressions when reasons for them exist, but a
sound banking and currency system will greatly mitigate their
severity and will absolutely prevent the money panics which,
too frequently, follow our business depressions. I speak
confidently because this has been the effect in every other great

It is proposed that the National Reserve Association shall
be located at Washington. This is to avoid a Kilkenny fight
between New York and Chicago. If that should get started
we would never be able to proceed any further with the proposition. [Laughter.] In as much as the country is divided into
15 districts, and a branch is located in some city in each dis31082—10611

trict where the business for that district is actually done, it
matters little where the head office is located.

Its capital shall be 10 per cent of the capital of national
and State banks which are eligible for membership in the
association. Its capital must be $100,000,000, paid in when it
commences business, and within a year it ought to be $150,000,000. We provide that banks shall subscribe 20 per cent of
the capital, but the purpose of the second 10 per cent is really
to provide a double liability, the same as with national banks.
The second 10 per cent is to be called only to meet obligations
of the association.

The stock held by each subscribing bank shall equal 10 per
cent of its own capital, with, as I have stated, a double liability.
That is, a bank having a capital of $100,000 would take $10,000
stock of the reserve association.

Both National and State banks may have membership in this
organization. It is proposed that stockholders of the institution
shall be banks only; that it shall be a bank of banks; that it
shall be the keystone of our banking arch. No bank may join
with a smaller capital than $25,000. Its stock is nontransferable by statute. It can not be sold. If a bank goes out of
business it can turn its stock in to the reserve association and
receive its book value. It can not be voted by proxy. A principal officer of every bank must vote its stock or it must go

We confine its business to the banks which are its stockholders, to the Government of the United States, and to the
purchase of foreign exchange. The principal business of the
association will be the purchase of short-time commercial paper
maturing within 28 days, made by solvent parties and indorsed
by banks which are is stockholders. It can discount paper having a longer time to run when indorsed by the local association
to which the bank offering it belongs. It is permitted to purchase no stocks or bonds, except bonds of the United States,
and of the several States maturing within one year; nor may
it loan money upon the stocks or bonds of railroads or other
corporations. For the first time in our history commercial business, commercial paper representing the consumable products of
the country—the cotton, the corn, the wheat, the cattle, and the
products of the factory—will take precedence over the stock
exchanges in the power to borrow the surplus reserves of the
Mr. NOItRIS. I should like to ask the gentleman why the
time of these notes was fixed at 28 days?
Mr. VUEELAND. That is a banking question about which I
am unable to stop and go into detail. It is evident that the
assets of this great institution must be kept as nearly liquid as
possible. It is evident that they want no notes which represent
investments of a permanent character; they should represent
the products of the farm and of the factory on their way to
market. The bankers have thoroughly discussed this proposition at great length and have agreed that the acceptance of

notes maturing within 2S days, together with the provision for
discounting notes of longer time through the local associations
will be ample for the purposes of banks as well as being a great
check upon the undue inflation of credits.
Mr. PRINCE. Is it not based upon the experience of the
banks abroad?
Mr. VREELAND. It is. Twenty-eight days is somewhat
longer than the average time that paper runs which is discounted by the Bank of England or the Bank of France or the
Bank of Germany.
Mr. FORNES. Is 23 days the limit, or does it permit an extension of the loaning time?
Mr. VREELAND. That is for the board of directors of each
district to determine. I should say as a matter of practice
that banks would send in other paper to replace that maturing
in case of need.
Mr. FORNES. Is it intended by this system to loan upon
commercial paper at a fixed rate of interest?
Mr. VREELAND. It is proposed that the reserve association shall loan at a rate which shall be published weekly with
its statement of condition. That statement will be the great
business barometer, not only for the banks but for all the people
of the United States, showing the condition and tendencies of
business. If its weekly statement should show that the reserves
of the reserve association were steadily diminishing, if there
were indications of overexpansion or of overspeculation, they
would advance the rate, and the reason for it would be apparent
to everybody in their weekly statement of condition.
Mr. FORNES. Is this system the same as that of England
or France?
Mr. VREELAND. All of the State banks abroad issue weekly
statements and publish their discount rate.
Mr. MADDEN. If this system is adopted, does it contemplate
taking all the banks in the United States, State and National?
Is it obligatory on the part of the banks to become members of
the association?
Mr. YREELAND. There is nothing obligatory in this system
touching the banks. The banks do not .loin unless they choose.
Mr. MADDEN. What effect would it have on a bank not
in the association if it chose to remain outside?
Mr. VREELAND. That would be a question of judgment
with the bank itself. My opinion is that a bank which was a
stockholder in the association would have an advantage over
banks which were7 not members, because the depositors of that
bank would know without fail, in any emergency which could
arise, their bank could turn to the reserve association and
receive advances upon its commercial paper. This
would give
it an advantage, in my opinion, over a bank wrhich could not
avail itself of that privilege.
Mr. MADDEN. If any considerable part of the banking
capital of the United States thought it proper to remain outside the reserve association would that mean that we would
have two banking systems or would it remain one?
Mr. VREELAND. If we enact this proposed legislation we
provide the banks of the United States with a sound and safe
banking system, which will free them from the danger of
money panics and will enable them at all times to extend

credit to solvent customers at some rate of discount. We are
taking away nothing that we have at present. We do not oblige
the banks to join it. We merely authorize the banks to put in
a reasonable amount of capital and create another institution,
under limitation of law, for the safety of themselves and the
benefit of the people. If they refuse to put in the capital and
avail themselves of the means of safety which we provide, I
should then say that the next time tjiey suspend payment and
refuse the money due their depositors public opinion would
compel the Comptroller of the Currency to say to them that they
must fulfill their obligations or shut up their doors.
Mr. BULKLEY. Will it not be possible for banks, under the
proposed reserve association, to borrow of the reserve association on stocks of the stock exchange or investment securities
under the provisions of section 28?
Mr. VREELAND. I have already alluded to that. In no
case can a bank borrow of the reserve association on corporation stocks or bonds. Under section 28 the direct obligation of a
bank, if indorsed and guaranteed by the local association, may
be accepted by the reserve association. In that case the local
association is required to take of such bank ample security for
its indorsement and guaranty. The security taken might consist of any assets of the bank satisfactory to the oflSeers of the
local association.
Mr. BULKLEY. Some of those assets might be investment
Mr. BORLAND. I do not want to take up the gentleman's
time, but I desire to inquire as to the right of new banks to
enter into this reserve association.
Mr. VREELAND. New banks or any banks, old or new, have
the right to join the reserve association at any time, provided
such bank comes up to the standard fixed.
Mr. LITTLETON. I desire to ask the gentleman one question for information. Do I understand the gentleman to say
you could not borrow upon bonds or stocks if you want to do so,
but rather upon commercial paper? Does that mean that you
can not borrow from any member of the association upon stocks
or bonds?
Mr. VREELAND. It means that you can do anything with
stocks and bonds which you can do now. But it also means
that, so far as the reserve association is concerned, it can only
purchase from banks short-time commercial paper.

The reserve association shall pay no interest on deposits.

The dividends which the reserve association may pay are
limited to 5 per cent, and the balance of its earnings are to be
paid into the Treasury of the United States. This is a vital
part of this plan. We do not intend to create a money-making
institution. We must make the dividends which it may pay to
its stockholders so small that they will be earned automatically
without effort on the part of its management. We do not wish
the control of this institution to be influenced in the slightest
degree by desire or power of its directors to increase its dividends. We want the management of this great organization to

be guided entirely by the welfare and the needs of the business
of the United States.
I have stated that we must let the bankers run the banking
business of the country. We can not turn it over to the butcher
or the baker, but we should provide by law that the banker
may make no undue profits and receive no privileges detrimental to the public welfare in the creation of the reserve
association. The rate of interest which we provide would be
considered by everyone, I think, as a small return upon bank
capital. It should also be noted that the national banks are
losing the profit upon bank circulation, which at the present
time probably amounts in the aggregate to $10,000,000 a year.
This will go to the reserve association and with its other profits
above 5 per cent into the United States Treasury.
Mr. BULKLEY. Will the gentleman state to whom the 20
per cent, which it is proposed to accumulate, would go upon
the dissolution of the association. If it will go to the banks,
then it would be 20 per cent profit in addition to the 5 per cent.
Mr. YIIEELAND. It would be an additional profit, but
rather a limited kind. A bank could only realize upon that if
it should go into liquidation and turn in its stock to the reserve
association. It is rather a safety fund for the benefit of the
association than a profit to the banks.
Mr. BULKLEY. Will the gentleman say whether that will
prevent the reserve association toward the end of the 50-year
period calling the other 10 per cent as payment on the capital
stock and adding a 20 per cent surplus to that?
Mr. VREELAND. The additional 10 per cent of stock can
not be called except to meet obligations. That, at the very
least, would mean that the reserve association would have dissipated its surplus and impaired its capital. Nothing less than
this would justify a call for the additional 10 per cent of stock.

We provide that the rate of discount of the National Reserve
Association shall be uniform throughout the United States.
This provision will be of enormous benefit to the South and
West, where great development will take place in the years to
come, and where capital at reasonable rates of interest is
greatly needed. The effect of this provision undoubtedly will be
lower rates of interest in the undeveloped portions of the
country and more uniform rates in all parts of the country.
While farmers and business men will receive the benefits of
lower discount rates, it does not mean that the earnings of the
banks need to decrease. Our commission found last fall that
the banks of Denver were carrying from 40 per cent to 50 per
cent cash reserves. That means that millions of dollars were
lying idle which might be used in the development of that
section of the country. With a branch of the reserve association at Denver, where a bank could instantly obtain cash or
credit in case of need, the banks would be able to loan a much
larger percentage of their deposits at lower rates of interest
than now obtained without decreasing their net earnings.
Under the workings of the reserve association, I am confident
that it will be found in a few years that the reserves of national
banks will be needlessly large and may be safely reduced. Under our present system they are not large enough and can not
be made large enough to insure safety.

Mr. ADAIR. Does this plan fix any given amount of deposit
which a stockholding bank in the reserve association must
carry with the reserve association?
Mr. VREELAND. It does not; no, sir.

It is proposed that national banks may turn over to the
reserve association the 2 per cent United States bonds, amounting to about $740,000,000, against which the bank notes of
national banks are now issued. Let us assume that all of these
bonds are sold to the reserve association at not less than par.
The reserve association would then issue its own notes in place
of the present national-bank notes against these bonds. There
would be behind these notes the same security which they have
at the present time, besides much additional security.
It goes without saying that no one can bring forward any
proposition which will receive the slightest consideration from
the people, unless the safety of the bank notes proposed to be
issued shall be absolutely beyond question. That is the one and
only virtue of our present bank-note circulation—it is good from
one end of the country to the other. Any note which we put
in its place must be equally good.
Those who remember the " wildcat" and " red dog" State
bank circulation before the war appreciate a bank-note circulation good without discount in any part of the country, and even
abroad. But they have not always been entirely good as compared with gold. During nearly one-third of the life of our
national-bank system national-bank notes have been below
par. From 1863, when they were first issued, until the resumption of specie payment in 1879, they were below par as compared with gold. During the Civil War they were worth less
than 50 cents on the dollar as compared with gold.
Those who think this element of safety in our bank-note circulation should cover a multitude of shortcomings should study
the bank-note circulation of other countries. They will find
that where the bank notes are secured by gold and commercial
paper they are equally as good as ours, and yet they are
entirely elastic to meet the varying needs of business. The
notes issued by the Bank of France have been good for more
than 100 years. They have been good in war and good in
peace. Our notes were far below par, as compared with gold,
at the close of the Civil War, when the future of the country
was assured. The notes of the Bank of France were not to
exceed 4 per cent below par when Prussian armies were
marching through the streets of Paris, the Government in the
hands of the Commune, and its future uncertain.
The notes issued by the reserve association will have much
more security behind them than the Government bonds which
are behind our present note issue, although we consider that
ample. We provide that the reserve association must at all
times keep at least 50 per cent of gold or legal tender against
all demand liabilities, deposits as well as bank-note circulation.
If it falls below that we provide for a tax until it is restored.
We permit the reserve association, however, to subtract onehalf the Government bonds owned by it from its demand liabilities. The effect of that would be that it would have 50
per cent or more of gold against all demand liabilities, bank
notes and deposits, except the bank notes issued against the

Government bonds. These notes would be secured by Government bonds of equal amount and 25 per cent of gold in addition.
The security of the note issue under this plan is unquestioned
by bankers here or abroad.

The supreme test of the reserve association in the minds of
people generally will be its plan of management and control. Is
it possible for a few able and ambitious financiers to get control
of it, or is its organization such that it will be managed equitably for people from all parts of the United States? This is the
crux of the whole proposition. The people will be content to let
experts pass upon the banking questions, but they will want to
be sure that it can not fall under the control of some great
financial interest to be used for its own benefit
Mr. FORNES. Just one more question before going into
that. I understood the gentleman to say, in answer to a previous question, that the reserve association can only buy commercial paper. Suppose in time of financial stringency an institution like a savings bank, which has no commercial paper,
should offer its investments, say railroad bonds or municipal
stock, will it be able to obtain currency?
Mr. VREELAND. Mutual savings banks in the East have no
capital stock, and would not, therefore, be able to become stockholders in the reserve association.
Mr. FORNES. Could they get any relief?
Mr. VREELAND. They would get relief, but not directly.
Mutual savings banks do not have commercial customers to take
care of. They simply invest, according to law, deposits that
are made with them. They usually have no trouble except in
time of general panic. I think they easily take care of themselves at other times.
Now, Mr. Chairman, we provide that the United States shall
be divided into 15 districts. We provide that these districts
shall be formed around cities which are existing commercial
centers. You understand that the business of this institution
is to be done at these branches in each one of the 15 districts.
No money is loaned at the main office in Washington. All the
money that is loaned is loaned through one of these branches
and under the direction and control of the directors of each
district or branch. The main office at Washington merely exercises a general supervisory and advisory power—as, for example, to indicate the rate of discount each week, based upon
the condition of the reserve association.
Mr. GLASS. May I ask my colleague if the plan proposed
by the National Monetary Commission is not the same plan
presented by ex-Representative Fowler, of New Jersey?
Mr. VREELAND. I should say that it is far different. The
plan presented by Mr. Fowler was to give the right of issuing
asset currency to the 7,000 national banks of the United States.
Mr. GLASS. Did he not propose, just as you propose, to
divide the country into districts and create a national reserve
bank here in Washington?
Mr. VREELAND. Mr. Fowler divided the country into some
number of zones, but I do not understand that he created a bank
at all. I refer to the bill known as the Fowler bill, reported by
the Banking and Currency Committee of the Sixtieth Congress.
If Mr. Fowler introduced a later bill, I do not remember ever
to have read it.

Mr. GLASS. I think in a later bill you will find that he
created a reserve bank at Washington.
Mr. VREELAND. We have named in the law the number of
these branches to be placed in the different geographical divisions
of the country. We have provided that one branch shall be located
in the New England States, which shall constitute one district.
We have provided that the Eastern States, comprising New York,
New Jersey, Pennsylvania, and Delaware, shall have two cities
designated as branches. We have provided that the States of
the South, counting Maryland as a Southern State, shall have
four branches and four districts. We have provided that the
States of the Middle West shall be constituted into four districts with four branches. We have provided that the Pacific
Coast States and the Western States together shall make four
districts and have four branches.
We have been criticized, by some of the New York papers
particularly, for dividing the country in the way we have.
These papers seem to* assume that the banking capital and resources of the different sections of the country should have been
used as a basis for making these districts. I noticed recently in
the Wall Street Journal—by the way, a very excellent and conservative paper and a frequent critic of Wall Street—an article
severely criticizing the Monetary Commission upon its division
of the country into districts. I will read briefly from their
Heretofore the Monetary Commission has adhered rather closely to
sound propositions having to do with the main purpose of its arduous
task, and it has consistently refrained from doing things that would
appeal to this or that party or faction in politics. Accordingly, it is
the more surprising to see that body make a sheer change of front and
appeal to the foes of capital for support. Who could have suggested a
more drastic or commercially lawless proceeding than that the New
York banks—call it " Wall Street" if you like—which possess fully 30
per cent of the banking capital of the United States, shall be shorn of
their fair representation in the central association, which at most is
less than one-third of the total banking capital, so that their natural
and regular share of control or voice will be less than 10 per cent? In
other words, a dollar of New York capital would count for but 30 cents,
while a dollar of southern capital would count for $2.30 or thereabouts.
That this scheme of hamstringing New York capital is a concession to
popular prejudice is virtually openly avowed in the explanation that is
offered to the effect that by providing for such a method of organization it is expected to safeguard the proposed institution " against
Wall Street control."

I want to say that the writer of that article evidently misapprehended the theory upon which these districts are formed,
according to the idea of the National Monetary Commission.
Our action was not an appeal to the foes of capital, nor was the
division of the country into districts the result of any compromises among members of the commission. No one speaking for
the commission has ever indicated that banking capital or banking resources should be the basis upon which the country should
be divided into districts. These districts, formed around natural commercial centers, are made for the convenience of carrying on the business and commerce of the United States. The
population, the terrritory covered, the natural lines of trade and
commerce, probability of future growth—all of these things are
to be taken into consideration as well as the banking capital
and banking resources. It was our desire that there should be
no bank in the United States more than 24 hours by mail from
the nearest branch. The members of the commission were

unanimous in fixing these districts and the number of branches
in each geographical division.
Let me point out these districts and the cities where branches
would probably be located. Of course, this is only my individual
opinion and in some cases might change after a study of the
situation. Let me say at this point that the plan provides for
a commission, consisting of three Cabinet officers and the Comptroller of the Currency, to lay out these districts and locate the
branches. [Showing map.]
We provide one branch for New England, and it would be located at Boston. There would be, I suppose, no dispute over
that. What necessity would there be for another branch in
New England? Boston is within 10 or 12 hours of every bank in
New England. Then there is New York, 240 miles from Boston; Philadelphia, 90 miles from New York; and Baltimore,
which would probably be selected, 95 miles from Philadelphia.
What need would-there be for having more branches in this
part of the country? Certainly the needs of business would not
require it. The plan directs that there shall be four in the
Southern States, including Maryland; Baltimore would probably be selected; New Orleans, quite likely; and some city in
Texas; the fourth branch would seem to fall to the Middle Atlantic section, perhaps Atlanta. Four branches would be needed
in this large and growing portion of the United States. We
provide that the great Middle West shall have four branches.
Chicago would pass without challenge, and Minneapolis-St. Paul
also. There might be some chance for difference of opinion between St. Louis and Kansas City. My personal opinion would
be that St. Louis would be entitled to be selected and that
Kansas City would be the center of the next district created, because we give to the directors of the reserve association the
power to create new districts when needed by the development
of the country. Cincinnati, Cleveland, and Detroit might be
considered for the fourth branch, with the chances favoring
Cincinnati on account of its central location, and the fact
that it already has a subtreasury. In the West and Pacific
States Denver would doubtless pass without question. Portland
or Seattle should be designated—probably San Francisco—and
Los Angeles or Salt Lake City; or it might be decided upon
study by the commission that one of the branches should go to
the rapidly
growing section around Oklahoma or to the territory of wrhich Omaha is the center.
Mr. MARTIN of Colorado. Did the New York banking
interests make any objection to this distribution plan?
Mr. VREELAND. There was no chance for objection to the
plan by anybody, because it was adopted in the closing days
of our sitting and not given to the public.
Mr. MARTIN of Colorado. I would like to ask a question
for information. While there might be a nominal distribution
of control by means of your district plan, it would not alter
the real control, which would be where the money is; that is,
in New York; so that New York would exercise just as much
actual control in this apparent distribution as though it was
centered there in the plan itself.
Mr. VREELAND. I should venture to disagree with the
gentleman on that proposition. Of course, New York City is
a great financial center. It was not made so by law any more

than New Orleans was made a cotton center by law. Every
country has its financial center. In making a banking and
currency law we can not take away from New York the
advantage of the billions of dollars of banking capital which
are owned in New York and, therefore, controlled there. Its
influence we can not take away nor do we seek to take it
away; but we seek to take away from the great banks of New
York City the responsibility of maintaining credit and cash
payment. We seek to transfer this great power to an institution under strict regulation and limitation by law and with
every part of the country having an equitable voice in its
management. I maintain that under this plan we disassociate
the commercial business of the country from the stock exchanges. I maintain that under this plan the bank reserves
of the country will be no longer dependent upon the fluctuations
of the stock market.
Mr. Chairman, it seems to me that any dozen gentlemen who
will take a map of the United States and locate the cities where
these branches of the reserve association should be placed for
the convenience of the business of the United States will agree
upon probably 13 out of the 15 cities. To locate them strictly
according to the distribution of banking capital and resources
of the country would mean a huddle of branches located in
cities in the eastern part of the United States, within an hour
or two by rail from each other, while the branches in the West
and South would be so few and far between as to make it
extremely inconvenient for the business and banks of those sections of the country.
Our theory of creating the National Reserve Association, with
the limitations of law with which we have hedged it about, is
that there is no advantage in having the control of it to any
section of the country nor to any financial interest. I am a
business man and a country banker in the State of New York.
Now, in New York State there are 30 per cent of the banking
resources of the country. As we have arranged the districts,
New York has 8 per cent of representation in the board of
directors of this institution. I have no objection to make to
that, because, in my belief and in my judgment, it would make
no difference if all of its directors were selected from the district
of which Minneapolis-St. Paul would be the branch, provided
the men selected were men of ability and integrity and high
standing in the business life of that district. I maintain that
the character and integrity and ability of the men chosen as
directors to manage this great institution, as the law directs
that it shall be managed, are of vastly more importance than
the sections of the country in which they may happen to live.
I shall endeavor to show that the control of the reserve association by selfish financial interests would be useless and profitless under the restrictions which we have placed in the statute.
Under this plan New England, with 12 per cent of the banking
resources, would have 8 per cent representation in the association; the Eastern States, with 41 per cent of the resources,
would have 15 per cent representation; the Middle Western
States, with 24 per cent of resources, would have 31 per cent of
representation; the Southern States, with 11 per cent of the
resources, would have 23 per cent of representation; and the

Western and Pacific States, with 12 per cent of resources,
would have 23 per cent of representation.
As I have said, the placing of branches in the different geographical sections of the country was niade entirely with a view
to convenience and efficiency in doing the business of the country, around natural existing centers, and the representation of
different geographical sections according to banking capital and
resources is merely incidental to such a division.
Mr. FORNES. I am much interested in the distribution of
power in the system, and I may say that I favor it, and that I
introduced in 1907 a bill for a bank having the same fundamental principles as in this one. After the thorough investigations made by the Monetary Commission, it has simply strengthened in my mind the system of banking I advocated in 1907.
The CHAIRMAN. The time of the gentleman has expired.
Mr. MANN. I ask unanimous consent that the gentleman
may proceed for 30 minutes.
There was no objection.
Mr. VREELAND. NOW, Mr. Chairman, let us turn our attention to the building up of this reserve association. We do not
commence at the top and build down, but we commence at the
bottom in every locality and build up.
Mr. TILSON. Before the gentleman passes along from the
districts, I would like to ask if the districts are fixed by hard
and fast geographical lines, or if a bank in a certain community
can go to its natural business center?
Mr. VREELAND. There are no geographical lines in forming
these districts. The idea of the commission is that these districts will be built around branches which are natural, existing
business centers. For example, if a portion of the State of Connecticut or all of the State of Connecticut is now doing business
with New York and prefers to continue doing its business there,
it would probably be put into the district of which New York is
the branch. This refers, of course, only to the business which
they do with the reserve association. The banks of Connecticut
probably do business with both Boston and New York, and
would continue to do so. But so far as their business with the
reserve association is concerned, I should expect existing lines
of business and the preferences of communities to be followed.
As I have stated, it is built up like our Government. The
local bank is the unit with which we commence to build. The
local bank corresponds to the township; the local association,
which is a group of local banks, corresponds to the county;
these groups of local associations united into the district correspond to the States, and the reserve association, consisting
of the 15 united districts, corresponds to the National Government.
Let me refer for a moment to a local bank, one of the 25,000
or 26,000 banking units scattered throughout the country. I
want to say that, in my opinion, nothing is more representative
of the community than a local bank situated therein. Ninetynine per cent of the ownership of these banks is in the communities where they exist. Their stockholders and directors
and officers live there. All their interests are there; their
deposits come from the communities where they are located;
they loan their money there so far as they are able to; there is no

outside interest of any description which compares for a moment in importance with their local interests.
The idea sometimes expressed that local banks are controlled
in the conduct of their business by larger banks in distant
cities is entirely unfounded. Local banks keep deposits in
financial centers for the convenience of their customers. They
also keep a portion of their reserves in financial centers. There
is keen competition among the banks of the financial centers to
obtain the accounts and deposits of local banks. Whatever
obligation there is rests with the banks in the financial centers
toward the local banks which are its customers and depositors.
Of course, I am not describing the great banks in a city like
New York, which draw their deposits and business from all
over the United States, but the business of the hundred banks
even in New York City is largely local and only a few of the
great banks there draw as much as half of their deposits from
outside the city.
We are building, then, upon institutions which are rooted in
the soil of every town, village, and city throughout the United
States. No outside interest of any description can compare in
importance to them with their local interests. In every town
and city of the country they are competing sharply with each
other. It would be destruction to a local bank to desert or
betray the interest of the people where it is located.
These local banking units in every district in the United
States will control in the framing of this institution. Let us
take a concrete example, if you please. The State of New York
would probably form one of the 15 districts, with New York
City as its branch. New York State has over 800 banks eligible
for membership. Let us assume that New York State would be
divided into 10 local associations. That would average 80 banks
in each association. These local associations would be formed
around some natural business center. Let us take the local
association formed in western New York, where my home is,
and of which Buffalo is the largest city. These local associations have important duties to perform, but I can only stop to
speak of them in connection with building up. the institution.
Each local association has its own officers and board of directors.
Let us assume that this local association decides in its bylaws to have 10 directors. Our plan provides that three-fifths
of these directors shall be elected by the banks voting as units;
that would be 6 out of the 10. Two-fifths, or 4, of the directors
are elected by the banks voting according to stock. Of the 80
banks in this local association, probably three-quarters are
outside the city of Buffalo. In electing a majority of the
directors, then, the banks voting as units control; that is, a
bank having $25,000 capital in a village has the same vote as
a bank with $1,000,000 capital in a city.
Each one of the 10 local associations in the State would elect
its officers and board of directors in the same way.
Mr. ADAIR. Will the gentleman yield?
Mr. ADAIR. If it is a good idea to elect 6 of the directors
by the unit vote, would it not be a good idea to elect 10 in the
same way?
Mr. VREELAND. Ordinarily in the formation of corporations the directors are elected entirely by the stock. This in31032—10611

stitution is created for special purposes, and we conceived it to
be a happy solution to provide that the directors shall be elected
in part by stock and in part by banking units. The same idea
prevails in our Government, where the States, regardless of
size, have an equal vote in the Senate, but are represented according to population in the House.
Mr. COOPER. Will the gentleman yield for a question?
Mr. VREELAND. I will.
Mr. COOPER. What is to prevent the large stockholders of
the large banks from owning all of these 25,000 little banks?
Mr. VREELAND. In the first place, I think they would find
it difficult to buy up the local banks. They would have to pay a
good deal more than they are worth; next we have a very
stringent provision in the law providing that banks which own
40 per cent or more of stock in another bank have only one vote.
Mr. COOPER. I know it will prevent banks, but what will
prevent the individual, the bank stockholder?
Mr. VREELAND. The gentleman has in mind the chain of
Mr. COOPER. Yes.
Mr. VREELAND. We provide in the law that whenever 40
per cent or more of the stock of two or more banks is owned
by any individual, trustee, or any form of holding company,
that it shall count as one unit and have but one vote, so that
100 banks under such circumstances would be entitled to one
Mr. Chairman, I have shown how the 10 local associations
in New York would be formed and how their boards of directors
would be elected. Then each of the 10 local boards elects a
voting proxy or representative. These voting proxies elect the
board of directors of the district or branch comprising the
whole State. Let us suppose that the branch has 12 directors.
It could have a larger number if it desired. One-half of these
directors, or six, would be elected by these voting proxies or
representatives from each branch, voting as units; one-third,
or four, directors would be elected by the same proxies voting
according to the stock owned in each local association; onesixth, or two, of the directors would be business men, not bankers. That makes up the 12 directors of the district. A deputy
manager of the district or branch is added to the board ex
officio. He is appointed by the governor of the National Reserve
Association, and his selection must be approved by the board of
directors of the district and he must be a resident thereof.
You will remember, Mr. Chairman, that this board of directors in each district does the actual business of the reserve
association. All discounts made for local banks in each district
are passed upon by this board. They are the ones to whom
complaint would first be made if some bank did not receive
the " equitable treatment" which the proposed law requires
that every bank shall receive. The banks in the New Orleans
district would have nothing to do with Washington, but would
do their business in New Orleans, passed upon by a board of
directors elected in their own section of the country, familiar
with their needs and familiar with the character and reputation of every bank. Here we have local self-government in the
highest degree conducive to safety.

Let us now elect the 46 directors of the National Reserve
Association. The board of directors of each of the 15 districts
elects a voting proxy or representative. These voting proxies
elect 15 directors, 1 from each district, who is a banker; they
then elect 15 directors who are not bankers and shall have no
connection with banks during their term of office, representing
the agricultural, industrial, and commercial interests of the
country. Not more than 1 of these can come from one district.
The same voting proxies then elect 9 additional directors, each
voting proxy voting according to the total amount of stock held
in the district which he represents. Not more than 1 of these
can come from one district. We then provide for 7 directors
ex officio, consisting of the Secretaries of Agriculture, Commerce
and Labor, the Treasury, and the Comptroller of the Currency, the governor and two deputy governors. This comprises
the 46 directors of the association.
The governor is appointed by the President of the United
States from a list of names furnished by the national board
of directors. The two deputy governors are elected by the
national board of directors.
It was considered proper that the United States should be
represented to this degree on the board of directors, not only
because we are creating it a fiscal agent of the Government, and
the Government will be, perhaps, the largest single depositor
in the association, but because the United States should have
representatives upon its board to see that the laws controlling
it are faithfully carried into effect.
Mr. Chairman, can any man fairly say that this institution,
so built up, will not fairly represent all the business interests of
all parts of the United States? Probably 15,000 banks, located
in every part of the country, would own the stock of the
National Reserve Association. Outside of two or three financial
centers these banks are local institutions, owned and managed
in all the cities and towns of the country. Their interests are
identical with those of the communities in which they exist.
This institution has been organized, so far as human ingenuity
can provide, along lines which make it secure against either
political control or the control of any financial interest. We
have made its earnings so small as to be automatic, and no
effort on the part of the management can increase tlie profits of
its stockholders. It is an institution in which the success of
those who manage it must depend upon serving the business
interests of all of the people of the United States.
We may fairly assume that the very best men obtainable
would be selected as directors in the* various boards of this
institution, just as men of high standing are selected as officers
in the clearing houses of the country.
A position as governor or director of the National Reserve Association will carry with it great honor and great responsibility. It is natural for all men to desire to achieve success in
the eyes of their countrymen. They can only achieve success
as officers of this institution by conducting its affairs for the
benefit of all the people of the country.
When a subcommittee of the National Monetary Commission
was abroad we interviewed the governor of the Bank of France,

one of t h e most able a n d eminent financiers in Europe. We
asked h i m :
What do you consider the province of the Bank of France, and what
do you consider your duty as its governor?
H e replied:
Gentlemen, the Bank of France was created by the great Napoleon
more than 100 years ago to serve all of the business interests of
France. It has existed under Emperor, under King, and under Republic;
it continued to fulfill its mission when Prussian armies were marching
in the streets of Paris. It has been the leader not only of the banking,
but of all of the great business interests of this country. It has never
been controlled by politics nor by the great financial interests of France.
My duty is to continue the business of the bank as it has existed for
more than a century. I could not achieve success by piling up great
deposits, because the Bank of France is becoming less and less a competitor of other banks. I could not achieve success "by earning great
dividends, because these would largely go to the Government. When I
lay down the reins of the management of this great institution my
administration will be known as successful if I have conducted it for
the best interests of all the people of France.

Mr. Chairman, it is an institution which will be conducted
along such lines that we are planning to build for the United
States, and we believe that we have placed such provisions and
limitations in the law that it will not lie iu the power of any
man or set of men in charge of it to deflect from it.
You understand, Mr. Chairman, that I am not seeking to-day
to discuss fully the banking details of this plan. It would take
too much time. I am trying rather to give the House a general
view of banking and currency conditions and to present in a
general way the remedy we are proposing. There are many
interesting banking details which I can not discuss at present
for lack of time. I wish, however, to present, in a concrete
way, the power of this institution to relieve business conditions
and to inspire confidence in the minds of the bankers and of the
I present herewith a statement of the probable condition of
the National Reserve Association, say two years after it has
commenced business. This is not my statement, which would be
of little value, but a statement made by Mr. James B. Forgan,
president of the First National Bank of Chicago, in my opinion
one of the greatest bankers in the United States, presented to
the convention of the American Bankers' Association at New
Mr. Forgan assumes that it would have—
Capital paid in in gold or legal
Government deposits
Bank deposits
Bank-note circulation against
ment bonds taken over from
Total liabilities, outside


$100, 000, 000
500, 000, 000

$150, 000, 000

700, 000, 000

of capital

Total liabilities

1, 300, 000, 000
1, 450, 000, 000

Against these liabilities it would acquire—
Gold or legal-tender money for its capital
Gold or legal-tender money for its deposits
Government bonds against circulation
Total resources

$150, 000, 000
600, 000, 000
700, 000, 000
1, 450, 000, 000

Let us assume that it has rediscounted paper for banks and
acquired foreign exchange and that its total investments amount
to $275,000,000. A normal balance sheet on this basis would be:
Gold or legal-tender money
Government bonds
Loans and investments


700, 000, 000
275, 000, 000


1, 725, 000, 000

Government deposits
Bank deposits (originally deposited in gold or lawful
Bank circulation
Bank deposits created by, or bank-note circulation issued
against, loans and investments (immaterial which)


150, 000, 000
100, 000, 000
500, 000, 000
700, 000, 000

~ I 7 7 2 5 , 000, 000

And a statement of liabilities and legal reserve against them
would be:
Gross liabilities
Deduct capital
Deduct 50 per cent of Government bonds
Net demand liabilities
Legal reserve money, 61.22 per cent

$ 1 , 725,
1, 575,



1, 225, 000, 000

Suppose, now, to avert a crisis $250,000,000 more loans should
be needed. The reserve association could rediscount paper
for banks and give therefor its notes or credit in any of its
branches and still have 50.84 per cent gold or legal-teuder
money against all demand liabilities. Or it could loan $500,000,000 in the same way and still have 43.47 per cent gold or
legal-tender money actually in its vaults. This would not by
any means exhaust its power of note or credit expansion to meet
any possible crisis.
These figures are such as to inspire confidence in the minds of
the bankers and of the people, and when we once acquire confidence neither the banks nor the people will demand money
until they actually need it, and our money panics will be at
an end.
Let us see now if the security behind this bank-note circulation would also inspire confidence. You will remember that
the note liability is made a first lien against all of the assets
of the association. Suppose this $500,000,000 in loans were put;
out entirely in the bank notes of the reserve association. It
has already issued $700,000,000 against 2 per cent Government
bonds, and its bank-note liability, we will say, would be $1,200,000,000. There would be in the vaults of the association to
secure these notes—
United States bonds
Commercial paper indorsed by banks
Add to this (double liability stockholding banks)

$750, 000, 000
700, 000, 000
150, 000, 000
775, 000, 000

Total to secure outstanding notes


These figures show that bank notes of the reserve association, even when it is greatly expanded, have vastly greater
security behind them thau the present bank-note circulation,

against which not the slightest suspicion arises even in time
of panic.
Let us use the statement of assets and liabilities given above,
showing loans and investments on the part of the reserve association to the amount of only $275,000,000, to indicate what
the earning capacity of the association will be. You will notice
in this statement that the reserve association has a cash
reserve of 61.22 per cent. Again, I am using Mr. Forgan's

3 per cent on Government bonds
31 per cent on loans and investments
Total income

$21, 000, 000
9, 625, 000
30, 625, 000


Operating expense
$5. 000. 000
Expenses connected with note issue
2, 000, 000
Franchise t a x (equal to 1J per cent on
$700,000,000 Government bonds taken over
from n a t i o n a l banks with privilege of circulation)
10, 500, 000
Net profits


~ ~ 1 3 , 1 2 5 , 000

Dividend on capital stock, 4 per cent
Applicable for division between surplus and t h e Government (besides franchise t a x of $10,500,000)
When the maximum dividend of 5 per cent is paid t o
stockholders and t h e surplus of t h e association is 20
per cent of its capital the distribution of profits would
be as follows:
Net profits as above
5 per cent maximum dividend to stockholders
Balance going to Government (beside franchise

6, 000, 000

7, 500, 000
5, 625, 000

I consider that Mr. Forgan's figures are very conservative.
The items of expense are considerably larger than I would make
them, and at the end of five years I should anticipate much
larger earnings for the association; but these figures are sufficiently accurate to show a large income going to the Government.
We are giving to this association great powers of expansion,
but in a Nation of 90,000,000 people, with enormous deposits and
an enormous volume of business, the institution which is to
maintain our credit must have great power. We have also
hedged it about with limitations of law unknown in the countries of Europe. We have limited its dividends so that there
can be no temptation to expand its business for the sake of
profits. We provide that it must keep a gold reserve of 50 per
cent of its demand liabilities, less one-half its Government bonds,
and if its reserve falls below '50 per cent we provide a tax upon
the deficiency. We may be sure that its management will be
of the highest order of ability, and they can only achieve success by managing it along safe and conservative lines.

I suppose I ought to refer for a moment to the so-called Aidrich-Vreeland emergency bill, which was passed by Congress in
1908 and which expires by limitation in a little over two years.
There was a good deal of opposition to this bill when it passed
because its purpose was not understood. But those who advocated the emergency bill also advocated the appointment of a

commission to make a comprehensive study of the whole subject, and that has now been done.
I think the country would be reluctant to see this law expire
with nothing to take its place. It is a rather crude and awkward provision of law, because the system to which we attach
it is crude and awkward; but I believe the fact that $500,000,000,
in case of a great impending crisis, could immediately be
brought into circulation would prevent the fear of a money
famine. The mere fact that it is on the books and can be used
gives a measure of confidence along this line.
I have likened this law to a town or village which has a
large number of frame buildings and where, on that account,
fire is likely to break out at any time and destroy the town and
the trustees think it wise to buy a fire engine to put out the
fire when it starts and before it becomes a conflagration. That is
what we did in passing the emergency law. We know from
experience that we have a very inflammable condition in the
States, and I thought we needed a fire engine so that
wTe could pour out some of that $500,000,000 to stop the fire
before it got beyond control. It is necessary to have such a
law so long as we have frame buildings, but that is not the
proper remedy. The proper remedy is to remove the frame
buildings and build up a fireproof structure, so that a fire will
not gain headway.
I want to quote what I said about the emergency law when
it was before Congress:
In my judgment the greatest benefit of this hill will lie in the fact
that it is on the statute hooks of the United States and can he used if
necessary- In my judgment the fact that a great fund of $500,000,000
can he called out in less than a week's time in case of impending crisis—
the very fact that it can he done does away with the probability that
we will ever be obliged to use it.

Mr. Chairman, some people say that this is a central bank or
a central bank in disguise. Every enemy of this proposed association calls it a central bank. Why do they do that? Because
they wish to appeal to the prejudice which still remains in the
minds of the American people growing out of the United States
central bank which Andrew Jackson strangled. And unless its
charter could have been radically changed when renewed, perhaps it ought to have been strangled.
But this proposed reserve association is no more like the
central bank of Jackson's time than black is like white. The
United States bank of Andrew Jackson's day was simply a
great private monopoly. It would be prosecuted to-day under
the Sherman Antitrust Act. It was the enemy and competitor of
every independent bank in the United States from the time it
was born. It established branches in all of the principal cities
of the country and competed with the other banks for business.
It had a monopoly of note issue, and there was no limit upon
the amount of notes which it could put out, nor was there any
limit upon the dividends which it could pay to its stockholders.
It had the prestige of having the United States as a stockholder. There was little control over it by the Government of
the United States. It was run solely as a money-making institution for the benefit of its stockholders. A renewal of its
charter was refused because it was a contest between a great
military hero, supported by the State banks on one side, and a
monopolistic money corporation upon the other.

Nobody would propose such a bank to-day, and yet, Mr. Chairman, in 1840, four years after a renewal of its charter was refused, the people of the United States elected a President upon
a platform which called for another Bank of the United States.
Do you know that Congress twice passed bills to inaugurate
such a bank, and that both were vetoed by President Tyler
under the influence of the State banks, showing that with all its
crudeness and monopoly from the standpoint of to-day it had
given the people the best banking facilities they had had up
to that time?

Sometimes gentlemen who have not studied this plan say
that they fear we are creatiug a monopoly. Why, Mr. Chairman, we are acting upon just the opposite principle. We are
proposing a preventive of monopoly. We are proposing an institution which has no incentive to monopolize. You can not
have a monopoly where dividends are limited to 5 per cent. We
are decentralizing the power which exists in our banking system at present and distributing it throughout the United States.
Suppose that the Standard Oil Co. had been chartered by the
National Government and its dividends to stockholders limited
to 5 per cent, or even 10 per cent, the balance of their earnings
to go to the Treasury of the United States. Do you suppose
that the Standard Oil Co. would ever have grown to be a
monopoly? Monopolies exist for the purpose of earning larger
dividends for those who own them, and when we limit their dividends to a nominal sum we take away every incentive to reach
out and absorb and monopolize business.

Some good people are afraid that if wo establish the National
Reserve Association it will get into politics. I suppose they
mean by this that it will become the subject of attack by one
political party and of defense by another political party. Why
do they fear "this? Because 75 years ago, in Jackson's time, a
central bank existed and a political contest arose over the
renewal of its charter.
I have no fear of political contention over an institution
established along the lines of the reserve association. But if
it were possible to again set up to-day the central bank of
Andrew Jackson's time it would as surely become the subject
of bitter political contention as it did then. The difference is
that one was a huge monopoly, competing with and antagonizing
a large and important element in our population; the other is
a cooperative association with limited earnings, powers carefully limited by law. its control decentralized, democratic in
principle and operation, created to benefit all of the people of
the country.
Upon some questions there is bound to be political agitation
which is taken up by political parties—for example, the tariff.
There are irreconcilable differences between groups of people
in the United States upon the question of the tariff, based upon
personal and sectional interests. The importers, an influential
body of business men, would desire to have no tariff, or one so
low that they could bring in foreign products without hindrance,
thereby increasing their business and their profits. On the
other hand, the manufacturers would desire to have a tariff
so high that all foreign products would be shut out, so that

their business and profits would increase. These differences
can not be reconciled, but both the importer and the manufacturer would agree that we ought to have the best banking
and currency system that we can devise.
The trusts are a political question. They are attacked by
their independent competitors and by the consumers of their
products, who believe, whether right or wrong, that prices are
being increasedTby monopoly.
But there w ould be neither competitors nor consumers to
attack the reserve association, and it is generally agreed that
the effect of the association would be toward lower and more
uniform interest rates throughout the United States.
Under our banking system the State and National banks are
not in politics. That was not true in Jackson's time. Then
banks came into existence as a matter of political favor. In
those days charters for banks were issued by legislative bodies,
and in New York State in Jackson's time men who went to
Albany r to ask for a charter for a bank did not get it unless
they w ere in accord with the political party then in control.
Bank charters were given as a matter of patronage.
All that is changed. The stockholders of banks belong to all
political parties. Probably there are few banks in the United
States in which every stockholder belongs to the same political
The Comptroller of the Currency at Washington has control
over 7,200 national banks. He has only to point the finger of
suspicion at almost any national bank in the United States in
order to impair its standing in the community and perhaps
start a run upon it by its depositors. Yet even in the heat of
a presidential campaign no one has ever heard it charged that
any Comptroller of the Currency has ever attempted to use his
great powers for political purposes. The reason is that banks
are owned by men of all political faiths. The managers of them
are careful to keep them free from political entanglements.
The officers and directors of the reserve association will be
selected on account of their standing as bankers or business
men, just as officers of clearing houses are selected.
It is my belief that if the reserve association should be in
existence for two years it would become so intrenched in the
favor of the people that no political interest would dare attack
it, because the people will see lower and more uniform rates of
interest; they will be relieved of the fear of money panics; they
will see the earnings of the association, beyond a modest dividend, flowing into the Treasury of the United States; they will
see the commercial business of the country separated from the
stock exchanges; they will see the power, so largely centralized
at present, decentralized and placed in 15 commercial centers of
the country.
Financial operations and financial control are little understood by people generally and therefore they are suspicious of
them. We are setting up a financial control which will be open
to the light of publicity, all of its operations understood and
published to the world, and its officers and managers responsible
to the law.

Some critics say that the Standard Oil group or the Morgan
group or both of them will get control of this institution. Mr.
Chairman, the American people have prided themselves upon

their ability to originate and conduct great enterprises. They
have prided themselves upon their inventive genius and their
new and modern methods of doing business. In our monetary
system alone we are behind every other great country. Must
we admit that we are not able to originate a banking and currency system, embodying the principles tested by experience,
which shall
be safe from ambitious financial interests? If so,
then wTe will have to go along and suffer under our present
But I am not willing to admit that the American people, with
their energy, inventiveness, and originality, are not smart
enough to write upon the statute books, in terms which all may
read and understand, the provisions and regulations of an institution which shall be safe from this danger.
I want to ask those gentlemen who fear that the Standard
Oil group or the Morgan group will control, Who is in control
of the financial field at present? Who has not noted the amalgamation of banks in New York and Chicago which is constantly taking place? Every few months some colossal bank
emerges from the unification of two or more banks in those
great cities. Why, Mr. Chairman, it is not left for us to decide
whether we will have centralization in the financial field or not.
We have it to-day. We will have it in increasing degree as the
years go by. The only question is, What kind of centralization
shall we have? At present we have centralization of power and
management and a decentralization of reserves and bank-note
What we are proposing in its place is a decentralization of
power and management and a centralization of a portion of our
reserves and of our bank-note circulation under strict regulation of law.
We have to-day centralization in one or two of the great cities
of the country, existing for private and for selfish interests,
with no limitation of the profits which may be levied upon the
business of the country. We would substitute for it cooperation
for the general welfare, with limited earnings, in the full light
of publicity.
Mr. FOWLER. Mr. Chairman, will the gentleman yield?
Mr. FOWLER. I wanted to ask if there is any way for a
bank to get out of the organization when it is once in?
Mr. VREELAND. We make no provision for their getting
out unless the bank should go into liquidation. We think an
institution charged with such great responsibilities as this one
should be made as stable as possible, and that it would not be
stable if banks could withdraw at pleasure.
I believe that any man who will study and understand the
provisions of this plan will admit that the Monetary Commission has placed it beyond possibility of selfish financial control.
We have provided that there shall be no sale of stock and no
voting proxies upon stock. We have given to the tens of thousands of country banks, whose interests are identical with the
communities in which they are located, the power to elect the
directors in the local associations in the 15 districts and finally
in the national board. We have given to the board of directors
in each one of the 15 branches control over its own affairs except
as to rate of discount. We have provided against one bank
holding the stock of another. We have provided that so-called

chains of banks under one control shall have but one vote. We
have declared in the law that every bank shall have equitable
treatment. We have made the earnings so low as not to be
attractive to large interests. There could be no speculation in
its stock, because it could not be sold.
No great financial interest would dare to attempt to secure
control of it in view of the experiences of the last few years.
Any act by any director of any district board or of the national
board which indicated that he was acting for selfish or personal interests would excite criticism, and he would fail of
reelection as a director and retire in disgrace.
But while these restrictions make it certain that no great
financial interest could control the reserve association or any of
its branches, and would never dare even try to do so, the limitation of the powers of the reserve association make it certain
that no special interests would desire to obtain control if it
were within their power. How would it benefit them? What
could they do with it? Does anyone suppose that the Morgan
group or the Standard Oil group desire to borrow money upon
commercial paper which has 28 days or less to run, and which
must be indorsed by a bank and upon which they would have to
pay the same rate of discount as every other bank in the United
But some one says that great financial interests in New York
bought the Equitable Life Insurance Society, paying $2,500,000
for 51,000 shares of its stock, which carried control of the election
of the directors of that institution. But, Mr. Chairman, that was
a very different proposition, at least before the change in the
law of the State of New York limiting investments of life insurance companies. The Equitable Life Insurance Co., at the
time of its purchase, had assets of $500,000,000; it had an annual income of $75,000,000 or $100,000,000. Its enormous assets
and its enormous income could be invested in the stocks and
bonds of railroads, in the stocks of banks and trust companies,
and, I think, in the stocks and bonds of industrial corporations.
It would be a tremendous implement of power in the hands of
men who deal in great financial affairs.
But under the law the reserve association could not purchase
railroad stocks or bonds, or bonds of any description except
bonds of the United States and of the several States maturing
within a year, and of some foreign countries. It can not even
loan its money upon stocks and bonds, and its rate of discount
is uniform throughout the United States. So there is no parallel between the two cases.
It is only proper to state that in the case of the Equitable
Life Insurance Co. no advantage has ever been taken of the
control so purchased. Voting trustees were selected from
among men of the very highest standing in the country, and
that great and beneficent society has always been and is to-day
managed entirely by committees representing its policy holders.
It is evident, then, that no great financial interest could afford
to invest any capital or spend any time in trying to get control
of the reserve association for the purpose of using its funds to
gain control of railroads and industrial corporations, or of
banks and trust companies, through the ownership of stocks
and bonds. The reserve association can be used for none of
these purposes. Its money can only be used to purchase com31082—10611

mercial paper indorsed by a bank and at a uniform discount
The CHAIRMAN. The time of the gentleman has again
Mr. MANN. I ask unanimous consent that the gentleman
may proceed for 15 minutes more.
There was no objection.
Mr. SHERLEY. Will the gentleman permit me?
Mr. SHERLEY. I am inclined to believe that under the
limitations of the proposed law outside control would be impossible. But assuming, as the gentleman does, that the control
is there, then I think the gentleman's statement is too broad,
that no advantage would result from such control.
Mr. VREELAND. Perhaps I should modify it by saying
that no advantage could come through such control which
would be at all commensurate with the tremendous and continued efforts necessary to obtain it. Individual banks could
not be discriminated against, because we put the clear direction
in the statute that all banks shall have equitable treatment.
The bank would have the right of appeal to the court. I am
sure that the gentleman from Kentucky, with his acute and
analytical mind, will agree with this position when he comes to
make a thorough study of it.
Mr. COX of Ohio. I would like to know if under this system
there is a larger measure of protection to the depositors than
under the present system?
Mr. VREELAND. We think very much more. We think, in
the first place, that no solvent bank ever need close its doors
with this association in existence. We think the protection to
depositors of all banks is greatly enlarged, because these local
associations, groups of local banks, will become thoroughly familiar with each other, and watching and scrutinizing the condition of each other, because they may be called upon to guarantee for each other. We think that in itself would be conducive to much greater safely than we have under the existing
system. When Congress takes up this bill for review it may,
perhaps, find, as the gentleman suggests, where additional features can be added for the safety of depositors.
Mr. DAVIS of Minnesota. I assume from the gentleman's
statement that this reserve association is, to a certain extent,
the fiscal agent of the Government as well.
Mr. VREELAND. Yes, sir.
Mr. DAVIS of Minnesota. I will not assume that it is possible for any set of men to get control of the board of directors;
but, in any event, would they not control the destiny of this
Government from a monetary standpoint in case the Congress
declared war? Would it not be in the power of this reserve
association to determine whether the Government should raise
money to carry on this war, and would this not be a dangerous
power to place in their hands?
Mr. VREELAND. If any such power existed, it would be a
dangerous power; but nothing of the kind does exist. On the
contrary, it would be of the very greatest assistance to the
Government in case of sudden war. It takes time to issue and
sell bonds, and if we had no large surplus in the Treasury the
reserve association would be in position to immediately advance

to the Government, say, $50,000,000, probably taking therefor
obligations of the Government maturing within a year. It
would, then, free of cost, act for the Government in selling its
bonds, instead of paying a commission to large New York banking houses which have usually handled Government issues. In
the past, in the wars which we have had, bankers have usually
been as patriotic as any other class of citizens in assisting the
Mr. Chairman, I have already consumed more than two hours
and I do not wish to ask further time. It is too great a subject to discuss in one speech. I must leave unanswered in the
minds of gentlemen many questions—important questions in
the details of the bill.

I desire to add but one thought further, and that is, if we
ever get a banking and currency system worthy of our country
and of its people, it must be kept out of discussion along
political lines.
It must not be made a football for partisan and political advantage.
I have said that not even this great body can change wellsettled principles, established and settled by the experience of
mankind. This great body, representing 90,000,000 of people,
should take up this question with a patriotic determination to
place upon the statute books the best and most scientific banking
and currency system possible to devise.
We do not present this as a perfect bill. The further study
by Congress and by the country may give us light for further
improvement. For three and a half years this question has
been kept out of politics. It has been discussed by the commission, by State associations of bankers, by currency committees appointed by boards of trade in all of the leading cities
of the country, by political economists and financial writers
solely upon its merits from a scientific and economic standpoint.
Let us hope that the Congress of the United Stales will keep
the discussion on this high plane. I would much rather see this
legislation go upon the statute books with the control of the
Government divided between the political parties.
I sincerely hope that it will not require the losses and suffering of another great money panic to induce Congress to act.
Our present banking and currency system is like the old confederacy which existed after the close of the Revolutionary
War—weak and flabby, without consistency or power, because
there was no cohesion, because the States were unable to use
their great resources and power as a unit. You will remember
that it took all of the influence and power of Washington and
Jefferson, of Madison and Hamilton, to induce the people to lay
aside that weak and flabby confederacy and adopt the Constitution of the United States, under which we have grown so great
and powerful.
The adoption of the Constitution was the greatest event in
our history; it created, we hope for all time, a Nation.
So it will be an epoch in our commercial history when we
place upon the statute books a banking and currency system
commensurate with the greatness and power and resources of
our country. [Applause.]