Full text of Report of the National Monetary Commission
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NATIONAL M ONETARY COMMISSION Report of the National M onetary Commission W ASHINGTON G O VE R N M EN T PRINTING OFFICE 1912 NATIONAL MONETARY COMMISSION. N e l so n W. A l d r ic h , Rhode Island, Chairman. E d w a r d B. V r e e l a n d , New York, Vice Chairman. ♦W il l ia m B. A l l is o n , Iow a. Bo ie s P e n r o s e , Pennsylvania. ♦Je s se O v e r s t r e e t , Indiana. Ju l iu s C. Bu r r o w s , M ichigan. E u g e n e H a l e , Maine. J o h n W. W e e k s , Massachusetts. ^Ph i l a n d e r C. K n o x , Pennsylvania. R o b e r t W. Bo n y n g e , Colorado. T h e o d o r e E. Bu r t o n , Ohio. ^Sy l v e s t e r C. S m i t h , California. ♦Jo h n W . D a n i e l , V irginia. IfEMUEL P. P a d g e t t , Tennessee. H e n r y M. T e l l e r , Colorado. G e o r g e F. B u r g e s s , Texas. H e r n a n d o D. M o n e y , Mississippi. A r s i n e P. P u jo , I*ouisiana. G e o r g e W. P r i n c e , Illinois. ^Jo se p h W. B a i l e y , Texas. F r a n k p . F l i n t , California. Ja m e s M cI^a c h l a n , California. Ja m e s P. T a l i a f e r r o , Florida. A. P i a t t A n d r e w , Special A ssistan t to Commission* A r t h u r B. S h e l t o n , Secretary. ♦ Deceased. ? Resigned. REPORT OF THE N A T IO N A L M O N E T A R Y C O M M ISSIO N . To the Congress: The National Monetary Commisison, created by sections 17 , 18, and 19 of “ An act to amend the national banking laws, ’ ’ approved May 30, 1908, submits the follow ing report: Section 18 of the act gave authority and instructions to the com m ission as follow s: I t s h a ll b e t h e d u t y o f t h is c o m m is s io n t o in q u i r e i n t o a n d r e p o r t t o C o n g r e s s , a t t h e e a r lie s t d a te p r a c t i c a b l e , w h a t c h a n g e s a re n e c e s s a r y o r d e s ir a b le in t h e m o n e t a r y s y s t e m o f t h e U n i t e d S ta te s o r in t h e la w s r e la t in g t o b a n k i n g a n d c u r r e n c y a n d f o r t h is p u r p o s e t h e y a re a u t h o r i z e d t o s it d u r in g t h e s e ss io n s o r r e c e s s o f C o n g r e ss , a t s u c h t im e s a n d p l a c e s as t h e y m a y d e e m d e s ir a b le , t o s e n d fo r p e r s o n s a n d p a p e r s , t o a d m in is t e r o a t h s , t o s u m m o n s a n d c o m p e l t h e a t t e n d a n c e o f w itn e s s e s . * * * T h e com m is s io n s h a ll h a v e t h e p o w e r , t h r o u g h s u b c o m m i t t e e o r o t h e r w is e , t o e x a m in e w it n e s s e s a n d t o m a k e s u c h i n v e s t ig a t io n s a n d e x a m in a t io n s , in t h is o r o t h e r c o u n t r ie s , o f t h e s u b je c t s c o m m i t t e d t o t h e ir c h a r g e as t h e y s h a ll d e e m n ecessary. In accordance with these instructions we have under taken in as thorough and scientific a manner as possible to investigate banking and currency conditions in this and other countries. These investigations have been pursued through hearings and exam inations in this country and abroad by members and representatives of the com m ission, and through the preparation o f papers and m onographs by expert authorities. The commission has through the Com ptroller of the Currency collected statistical and other inform ation from National and State banks and trust com panies, national-bank examiners, and State bank supervisors. 3 National Monetary Co mmi s s i o n In the summer o f 1908 members o f the commission visited England, France, and Germany, the three countries o f Europe in which conditions most closely resemble our own, examining their hanking arrangements, m ethods, and practices by personal interviews with the officers o f the leading institutions. Representatives o f the com mission have also visited the banks o f Canada, Scotland, Switzerland, Italy, and Sweden, conferring with their officers and examining at first hand their m ethods o f organization and their arrangements for dealing with reserves, note issue, Qpmmercial paper, and other banking factors. The ques tions and answers o f the European and Canadian interviews have been published in tw o volum es, which we believe contain more accurate and concrete inform ation in regard to the actual practice o f banking in these countries than has ever been published before. The com m ission has con ducted hearings and made inquiries in different parts of this country for the purpose o f obtaining opinions o f people, representing different localities and occupations, as to desirable changes in our banking laws. Public hear ings, after am ple notice thereof, have been held in New Y ork, Chicago, St. Paul, Minneapolis, San Francisco, Seattle, Portland, Los Angeles, Salt Lake City, Denver, Kansas City, St. Louis, and W ashington, while meet ings such as that o f the W estern Econom ic Society at Chicago and o f the Am erican Bankers Association and its affiliated organizations at New Orleans, which have been devoted exclusively to the discussion o f m onetary legisla tion, have been utilized by the commission as a means for securing opinions o f political econom ists and o f bankers, respectively. In examining the printed literature o f banking at the beginning of our investigations we were struck by the paucity, both in Europe and in Am erica, o f material dealing with other phases o f the subject than the history of the circulation privilege. It was practically im possible 4 National Monetary Co mmi s s i o n to find, at least in English, any satisfactory account of the operations of European banks other than note-issuing baftks, any penetrating exam ination o f the great credit institutions or of the organization o f credit in other coun tries, while the literature o f banking in the United States was confined for the m ost part to accounts o f the obsolete State banking systems which existed before the Civil W ar and to the history o f national banking legislation. Until our banking authorities had analyzed the processes and functions o f m odem banking institutions and cut loose from the traditional m ethods of banking of half a century or more ago, it was not to be expected that the discussion o f banking reform would be in other terms than those current in the earlier period. It is a singular fact that m ost bankers, econom ists, and legislators who hud written upon banking had discussed banking questions in much the same language and from m uch the same point of View as English authorities who debated banking reform in England during the decades before the act o f 1844. The com m ission, therefore, at the inception o f its labors enlisted the services of the w orld’s best experts in a fresh exam ination o f banking in the leading countries as it is conducted to-day. Leading financial editor's, bankers, Governm ent officials, and university professors in Europe and America and in the Orient, were em ployed to prepare papers upon the actual operations o f banks and upon their separate functions and mutual relations. The com m ission has thus collected and published m ono graphs upon banking in England, France, Germany, Canada, Switzerland, Italy, Sweden, Belgium, M exico, Russia, Austria-H ungary, H olland, and Japan, as well as the United States, which, because o f their scope and authority, possess, we believe, enduring scientific value. By means of special statistical inquiries framed upon a uniform plan and directed to the leading banks of Great Britain, France, and Germany, we have collected more 5 Na t ion a l Mo net ar y Co mmi s s i o n com plete statistical inform ation with regard to the banks o f these countries than has ever been collected before, while, by a series o f special reports from all national and State banks and trust com panies in the U nited States, the com m ission has been able for the first tim e to present reports from all o f the banks in the country upon a uni form basis. The com m ission recognizes the value o f the assistance which it has received in the prosecution o f its various in quiries and in com piling its data, as well as in the draft ing o f its proposals. It w ould be im possible to enumer ate all o f the bankers, econom ists, editors, Governm ent officials, business men, and banking and com m ercial or ganizations that have generously and patiently cooper ated in the w ork, and it w ould seem invidious to attem pt any selection for special thanks. The list o f contributors to the publications o f the com m ission speaks for itself, but we are glad to express our obligations to m any others who have rendered equal service in other ways. The act o f May 30, 1908, providing for the appointm ent o f the National Monetary Commission was a direct conse quence o f the panic o f 1907. W e shall not attem pt to recount the severe losses and misfortunes suffered by the American people o f all classes as the result o f this and similar crises. T o seek for means to prevent the recur rence or to m itigate the severity o f grave disasters o f this character was, however, one o f the prim ary purposes o f its creation. W e have made a thorough study o f the defects o f our banking system, which were largely responsible for these disasters and have sought to provide effective remedies for these and other defects, in the legislation we propose. The principal defects in our banking system we believe m ay be summarized as follow s: 1. W e have no provision for the concentration o f the cash reserves o f the banks and for their m obilization and use 6 N at ion a l M o ne t ar y Co mmi s s i o n wherever needed in times o f trouble. Experience has shown that the scattered cash reserves of our banks are inadequate for purposes o f assistance or defense at such times. 2. Antiquated Federal and State laws restrict the use of bank reserves and prohibit the lending power o f banks at times when, in the presence o f unusual demands, reserves should be freely used and credit liberally extended to all deserving customers. 3. Our banks also lack adequate means available for use at any tim e to replenish their reserves or increase their loaning powers whjen necessary to meet normal or unusual demands. 4. O f our various form s o f currency the bank-note issue is the only one which we might expect to respond to the changing needs o f business by autom atic expansion and contraction, but this issue is deprived o f all such qualities by the fact that its volum e is largely dependent upon the am ount and price o f United States bonds. 5. W e lack means to insure such effective cooperation on the part o f banks as is necessary to protect their own and the public interests in times o f stress or crisis. There is no cooperation o f any kind among banks outside the clearing-house cities. W hile clearing-house organizations of banks have been able to render valuable services within a lim ited sphere for local communities, the lack o f means to secure their cooperation or affiliation in broader fields makes it impossible to use these or similar local agencies to prevent panics or avert calamitous disturbances affect ing the country at large. These organizations have, in fact, never been able to prevent the suspension o f cash paym ents by financial institutions in their own localities in cases o f emergency. 6. W e have no effective agency covering the entire coun try which affords necessary facilities for making dom estic exchanges between different localities and sections, or 7 National Monet ary Co mmi s s i o n which can prevent disastrous disruption of all such exchanges in times o f serious trouble. 7. W e have no instrum entality that can deal effectively with the broad questions which, from an international standpoint, affect the credit and status o f the United States as one o f the great financial powers o f the world. In times o f threatened trouble or o f actual panic these questions, which involve the course o f foreign exchange and the international m ovem ents o f gold, are even m oie im portant to us from a national than from an interna tional standpoint. 8. The lack o f com m ercial paper o f an established standard, issued for agricultural, industrial, and com m er cial purposes, available for investm ents b y banks, leads to an unhealthy congestion o f loanable funds in great centers and hinders the developm ent o f the productive forces o f the country. 9. The narrow character o f our discount market, with its lim ited range o f safe and profitable investm ents for banks, results in sending the surplus m oney o f all sections, in excess o f reserves and local demands, to New Y ork, where it is usually loaned out on call on Stock Exchange securi ties, tending to prom ote dangerous speculation and inevi tably leading to injurious disturbances in reserves. This concentration o f surplus m oney and available funds in New Y ork imposes upon the managers o f the banks o f that city the vast responsibilities which are inherent in the control o f a large proportion o f the banking resources o f the country. 10. The absence o f a broad discount m arket in our sys tem , taken together with the restrictive treatm ent o f re serves, creates at tim es when serious financial disturbances are anticipated a condition o f dependence on the part of individual banks throughout the country, and at the same tim e places the farmers and others engaged in productive industries at a great disadvantage in securing the credit 8 National Monetary Co mmi s s i o n they require for the growth, retention, and distribution o f their products. 1 1 . There is a marked lack o f equality in credit facilities between different sections o f the country, reflected in less favored com m unities, in retarded developm ent, and great disparity in rates o f discount. 12. Our system lacks an agency whose influence can be made effective in securing greater uniform ity, steadiness, and reasonableness o f rates o f discount in all parts of the country. 13. W e have no effective agency that can surely provide adequate banking facilities for different regions prom ptly and on reasonable terms to meet the ordinary or unusual demands for credit or currency necessary for m oving crops or for other legitim ate purposes. 14. W e have no power to enforce the adoption of uniform standards with regard to capital, reserves, exam inations, and the character and publicity of reports o f all banks in the different sections of the country. 15. W e have no Am erican banking institutions in foreign countries. The organization o f such banks is necessary for the developm ent o f our foreign trade. 16. The provision that national banks shall not make loans upon real estate restricts their power to serve farmers and other borrowers in rural communities. 17. The provision o f law under which the Governm ent acts as custodian o f its own funds results in irregular withdrawals o f m oney from circulation and bank reserves in periods o f excessive Governm ent revenues, and in the return o f these funds into circulation only in periods o f deficient revenues. Recent efforts to m odify the Inde pendent Treasury system b y a partial distribution o f the public m oneys am ong national banks have resulted, it is charged, in discrim ination and favoritism in the treat ment o f different banks. 9 National Monetary Co mmi s s i o n There is a general agreement among intelligent students of the subject that to remedy these and other defects it is necessary to provide a comprehensive reorganization o f credit and a thorough reconstruction o f our banking sys tems and methods. W e submit herewith our recom m en dation providing for such reorganization in the form of a bill which, if enacted into law, will, we believe, accom plish these results. It is proposed to incorporate the N ational Reserve Asso ciation o f the U nited States with an authorized capital equal to 20 per cent o f the capital o f all subscribing banks, of which one-half shall be paid in and the remainder shall becom e a liability, subject to call under the provisions of section 3 o f the bill. It is also provided that before the reserve association can com m ence business $ 100,000,000 o f capital must be paid in cash. A ll State banks and trust companies conform ing to the provisions o f the bill with reference to capitalization and reserves and all National banks are entitled to subscribe for stock and to becom e members of the association. Shares in the association are not transferable and can not be owned otherwise than b y a subscribing bank or in any other than the proportion named. It is proposed to group into local associations all sub scribing banks located in contiguous territory. The local associations are to be organized into district associations, in each of which shall be located a branch o f the National Reserve Association; and the district associations, which shall be so arranged as to include all the territory o f the United States, are com bined to form the National Reserve Association o f the U nited States. These several associations are analogous in their organization to our political divisions, into counties, States, and the U nited States. Each has distinctive functions quite unlike in their character and each has representative self-governm ent. In the local association 10 National Monet ary Co mmi s s i o n the individual bank is the voting unit. A m ajority o f banks, w ithout reference to their size or their holdings of stock in the reserve association, elect three-fifths o f the directors, and a m ajority in stock interest elect tw o-fifths. This m ethod o f electing directors is, we believe, quite novel in corporate government. It is more dem ocratic in form , with more liberal representation to minorities than any m ethod in general use. One of the principal functions o f the local associations is to guarantee, upon application, the com m ercial paper o f individual banks which may be offered to the branches for rediscount, as provided in section 27 o f the bill. The local association m ay, and in most cases would, require from the bank making the application satisfactory security for the guaranty. Local associations are author ized in serious emergencies to guarantee the direct obliga tions o f subscribing banks with adequate security, in accordance with the provisions o f section 28 o f the bill. A local association m ay decline to give the guaranties provided for under either o f these sections. Local associa tions m ay also, b y vote o f three-fourths o f their board of directors and the approval o f the National Reserve Associa tion, assume and exercise the powers and functions o f clearing houses. They are required also to perform such services in facilitating dom estic exchanges as, in the opinion o f the National Reserve Association, the public interests may require. The boards o f directors, not less than 12 in number, of the district branches, are elected in the follow ing manner: First, one-half by the local associations, each association acting as a unit w ithout reference to its size or im portance; second, one-third by the local associations, each associa tion in this case casting a number o f' votes equal to the number o f shares in the National Reserve Association held by the banks com posing such association; third, one-sixth are chosen by the directors of the first and second class to II National Monetary Co mmi s s i o n represent other than banking interests. Thus a majority of the local associations, without reference to the amount of stock holdings which they represent, elect the larger group of the directors of the district branch. Each branch is to have a manager, who shall be a resi dent of the district, appointed by the governor of the National Reserve Association, with the approval of the executive committee of the reserve association and the board of directors of the branch. The manager of the branch is to be ex officio a member of its board of di rectors and its chairman. The functions of branch organizations are important. First, they hold the balances and a portion of the cash reserves of the banks of the district; second, they exercise the powers of rediscount and discount for banks located in their districts; third, they are required to redeem upon presentation in gold or lawful moftey the circulating notes of the association and to distribute such notes to indi vidual banks on application; fourth, they are required by transfers of balances through branches or local associations to facilitate domestic exchanges between different parts of the country. The board of directors of the National Reserve Associa tion is to be elected in the following manner: The bill provides that the entire country shall be divided into 15 districts, with a branch in each district. O f the 46 directors o f the National Reserve Association, 2 o f the first class, who shall be residents o f the district, are to be elected b y the directors o f each branch. One o f the directors thus elected b y each branch must fairly represent the agricultural, com m ercial, industrial, and other interests o f the district, and can not be an officer, nor, while serving, a director o f a bank, trust com pany, insurance com pany, or other financial institution. Second, nine directors in addition to the thirty o f the first class are to be elected b y the branch directors acting through 12 National Monetary Co mmi s s i o n voting representatives, each representative to cast a number o f votes equal to the number of shares in the National Reserve Association held b y the banks in the branch he represents. N ot more than one director o f this class may be chosen from one district, and this director must be a resident o f the district from which he is elected. There are to be seven ex officio members of the board o f directors, nam ely, the governor o f the National Reserve Association, who is to be chairman o f the board, tw o deputy governors, the Secretary of the Treasury, the Secretary o f Agricul ture, the Secretary o f Commerce and Labor, and the Comp troller o f the Currency. The executive officers o f the National Reserve Associ ation are to consist o f a governor, tw o deputy governors, a secretary, and such subordinate officers as m ay be authorized. The governor, who is to serve ten years, is selected by the President o f the United States from an eligible list including not less than three names furnished by the directors, and the deputy governors are elected by the board o f directors. The governor and the deputy governors are rem ovable for cause by the board o f di rectors. The board is to choose from among its number an executive com m ittee, consisting of nine members, of which the governor and the tw o deputy governors and the Com ptroller o f the Currency shall be ex officio mem bers. N ot more than one of the elected members o f this com m ittee can be chosen from one district. The board is also to elect from among its number a board o f exam i nation, o f which the Secretary o f the Treasury shall be ex officio chairman. This distribution of power and control furnishes the assurance that the general interests o f the country and o f all com m unities will be conserved as well as the inter ests o f the shareholders, as the National Reserve Associa tion, through this form of organization, is brought into close relations o f responsibility to the Governm ent and 13 National Monetary Co mmi s s i o n the people. The provision that one-half o f the directors elected by the branches shall fairly represent the agri cultural, com m ercial, and other interests, and shall not be connected with banks or other financial institutions, insures the infusion o f representative men into the gov erning board, who will have every m otive to act in the public interest. « t. Further restraint upon the adm i^Styation of the asso ciation on narrow or selfish lines is im posed b y the pro vision that four of the highest officials of the Governm ent are made ex officio members of the controlling board and by the requirement that the governor shall be selected b y the President of the U nited States. The fear has been expressed that the selection o f the governor b y the President and the provisions making the Secretary o f the Treasury, the Secretary o f Agricul ture, the Secretary of Commerce and Labor, and the Com ptroller o f the Currency ex officio members of the board of directors o f the reserve association m ight lead to an attem pt to control the organization for political pin poses. W e believe that the participation o f these officials in the management o f the institution to the limited extent prescribed is necessary to secure a proper recognition of the vital interest which the public has in the management of the association. It is a corporation with private stockholders, but it is proposed to make it the principal fiscal agent of the United States and the depository of its funds. The more im portant functions o f the organi zation and its principal powers are o f a public or semi public character. It is not only the custodian o f the Treasury balances, but the principal reason for its exist ence is found in its ability at all times to sustain the public credit. As constituted under present proposals, however, neither the President nor any o f the officials named could, from the inherent character o f the organization, use any *4 N at ion a l M o ne t ar y Co mmi s s i o n o f its functions for personal or political purposes, but to give to the President the power to appoint all the directors of the reserve association, as has been suggested, would result in making the association a political machine, and appointm ents would be solicited and bestowed as a reward for political services. In providing for the creation for specific purposes of this new representative organization it has been the aim o f the Monetary Commission to follow in its distribution o f powers and control our governm ental structure, and to coordinate independent local and district organizations through an effective central agency for mutual coopera tion. In this respect, as well as in its functions, the National Reserve Association differs radically from the First and Second Banks of the United States and from European central banks. Its sources of authority are dem ocratic and not autocratic. Instead of overshadowing banks, it is their representative; its controlling forces, act ing in the public interests, im pose policies upon and grant powers to its managers. In times of trouble it takes individual banks from a condition o f helpless isolation and dependence and places them in a position where their integrity and independence is assured, through an unfailing source o f support. It is outside of and supplemental to the existing system and not a com petitor in any sense with existing banks. It provides for an equality of privileges and advantages to all banks, great and small, wherever located. Its dom i nating principle is cooperation and not centralization. Its organization is o f a form and character that will effectually prevent the control of its operations by polit ical or other interests, local or national. The National Reserve Association is made the channel through which local banking institutions exercise their federated powers. It is in effect an evolution o f the clearing-house idea, extended to include an effective cen- is National Monet ary Co mmi s s i o n tral organization. It is not a bank but a cooperative union o f all the banks o f the country, with very lim ited and clearly defined functions. First, it holds a portion of the cash reserves o f the banks o f the U nited States with provision for their use only for specific purposes; second, it is granted the power to issue circulating notes, under strict governm ental regulations; third, through the main tenance o f its own reserves and the character and extent o f its resources it is required to sustain the credit o f the banks and of the country under all circum stances. All o f its operations are confined to, or incidental to, these purposes, the only exception being the transaction of its business as the fiscal agent of the Governm ent o f the United States. For obvious reasons the National Reserve Association is required to keep its assets in liquid form and its redis counts, discounts, and investments are confined to shorttim e paper or Governm ent securities. The National Reserve Association is given ample pow er to protect its own reserves, in order that it m ay be able at all times to exercise its m ost im portant function— that o f sustaining the com m ercial and public credit of the country. For the purpose o f strengthening its own reserves it m ay, first, attract gold from other countries b y an advance in its discount rate; second, purchase and borrow gold and give security for its loans, including the hypothecation o f Governm ent bonds; third, buy and sell foreign bills o f exchange. Short-tim e foreign bills have been found elsewhere m ost effective as a means o f replen ishing a gold supply, and o f preventing the exportation of gold at critical times. That our present system o f bank-note issues based upon Governm ent bonds is defective and that a change in the manner and character o f issues must take place at an early date is adm itted on every hand. There are now outstanding less than tw o hundred m illion dollars o f 16 National Monetary Co mmi s s i o n United States bonds with the circulation privilege attached not owned by the banks and held for circulation purposes. These bonds are largely of a class which it would not usu ally be profitable for the banks to buy as a basis for circulation. Congress has inaugurated the policy o f issuing bonds w ithout the circulation privilege. It is evident from these facts that if we are to provide for any future demands o f the country for currency the adop tion o f some other basis for note issues will be necessary. Our bond-secured currency has all the qualities of ulti mate safety, and its prom pt redem ption is guaranteed b y the United States, but it is not, as our experience has am ply shown, responsive, either in expansion or contrac tion, to the ever-changing conditions and demands o f business. W e propose that while the national banks shall have the right to retain their existing circulation all new issues shall be made by the National Reserve Association. W e propose that the authority now exercised by seven or eight thousand national banks shall be vested in this cooperative association o f all the banks. W e propose to relieve the United States from the obligation to redeem the outstanding national-bank notes based on the bonds which are taken over by the reserve association. The association is required to redeem in gold or its equivalent, at any o f its branches, upon presentation, such notes and all notes o f its own issue. A ll circulating notes o f the association are required b y section 41 of the bill, to be covered by gold reserves, or by United States bonds, or b y com m ercial paper which must conform to the standards established in the bill. The reserve association is required to maintain a reserve of not less than 50 per cent against all o f its demand liabilities, including all new issues o f notes, as well as those issued in place o f outstanding national-bank notes. The notes constitute a first lien upon all the assets o f the 22306— 12— 2 17 National Monetary Co mmi s s i o n reserve association, including its holdings o f Government bonds. W e propose that the im portant privilege o f note issue shall be accorded to the principal financial agent of the Governm ent, to be exercised under Governm ent control and supervision, with restrictions and lim itations o f such character as will, in our judgm ent, make undue inflation im possible. All profits which m ay arise from note issues will be paid into the Treasury o f the U nited States. W hile it m ay be contended that the issue of m oney o f any kind is a distinctive function of sovereign power, the ex ercise o f this authority directly by Governm ents has, as shown b y the experience o f the world, inevitably led to disastrous results. As safeguards against undue inflation of note issues it is proposed: First, that no notes shall be issued whenever and so long as the gold cover falls below 33^ per cent. Second, that a graduated tax shall be paid on the amount o f deficiency whenever and so long as the reserve against all liabilities falls below 50 per cent. For each 2% per cent o f such deficiency of reserve a tax o f 1 X Per cent is levied. T o illustrate, with the reserves at 40 per cent it would require the paym ent of a tax of 6 per cen t-on excess o f note issues. Third, that whenever notes are issued in excess o f $900,000,000, and not in excess of $ 1,200,000,000, and such excess issue is not fully covered by gold or other lawful m oney, a tax of 1% per cent shall be levied on the excess. Notes issued in excess o f $ 1 ,200,000,000, not fully covered by gold or lawful m oney, are taxed 5 per cent. W e have assumed in fixing the terms o f the lim itation o f $900,000,000 that the normal am ount o f bank notes to meet business requirements is ap proxim ately the am ount now outstanding— $700,000,000— and we have allowed for the natural expansion of $ 200,000,000 for seasonal or crop-m oving demands. It 18 National M on et a r y Co mmi s s i o n will be seen that we propose three effective provisions to prevent undue inflation of note issues. W e have imposed upon the National Reserve Associa tion the duty o f maintaining at all times a parity in value of its notes with the gold standard established by the act of March 14, 1900. The im position of this duty, accom panied as it is by ample authority to protect its gold reserves in the manner we have elsewhere explained, will, in our opinion, effectively rem ove the possibility o f a suspension o f gold paym ents by the association or by the Treasury. It has been insisted in some quarters that we should pro vide that all notes should be redeemed and all reserves held in gold, and gold alone. W e believe that no good reason exists for the adoption o f this suggestion. The gold-standard act o f 1900 settled finally the question of the standard o f value in this country. Prior to that time we had made silver certificates available for the reserves o f national banks. By the act o f 1900 we made gold certificates available as reserve m oney. Standard silver dollars and United States notes are legal tender and can properly be used in reserves. E very dollar of currency which the United States has isssued, or for which it is responsible, is to-day o f equal value with the gold dollar. W e are certain that the American people will not consent to any change in this respect. Practically all the silver certificates are now' in circulation in the form o f notes of small denom inations and therefore not likely to be held to any considerable extent either in the reserves of banks or of the reserve association. Gold certificates are certainly equal to gold. W e have provided, by the system proposed, for the ultim ate security of the notes through a pledge o f bonds o f the United States, gold, com m ercial paper, and the other assets o f the National Reserve Association, and 19 N at i onal M on et ary Commi ssi on have insured immediate convertibility into gold or its equivalent upon presentation at any branch o f the asso ciation. In fact, we have adopted every provision that the experience o f the world has shown to be necessary for the security and convertibility o f a paper currency. W e have provided that the reserve association, through its branches, shall at once, upon application and w ithout charge for transportation, forward the circulating notes o f the association to any subscribing bank against its credit balance. W e assume that there will be but few banks in the U nited States— certainly none 1n central com m uni ties— that will be m ore than 24 hours away from a positive source o f supply o f notes for use for crop m oving or other purposes. This provision w ill rem ove all danger o f a cur rency fam ine in any section o f the country. One o f the m ost difficult problem s with which the com mission had to deal was the question o f what provision should be made for the outstanding 2 per cent bonds owned b y national banks held b y the Treasury as a basis for their circulating notes. The recent sales o f the 3 per cent bonds issued for Panama Canal construction and the market prices o f these securities establish the fact that the credit o f the U nited States, now approxim ately on a 3 per cent basis, is above that o f any o f the other com m ercial na tions. If the credit o f the country is to be maintained at this point, as it seems likely that it m ay be, 2 per cent bonds, w ithout the circulating privilege, would probably have a m arket value approxim ating 70, and any legisla tion preventing their further use as a basis for bank cir culation would entail enormous losses upon the banks. W hen we consider that the refunding act providing for the issue o f these 2 per cent bonds practically com pelled the banks to purchase them , it w ould be m anifestly unfair for the U nited States to im pose upon the banks the severe losses which would follow their disuse for circulation purposes. 20 Nat i onal Monetary Co mmi s s i on These equitable considerations will undoubtedly have weight with the Congress, but it is equally bound to guard against any loss o f revenue or credit to the United States that would be involved in refunding these bonds into threes. W e therefore propose that the National Reserve Association shall purchase, at not less than par and interest, the 2 per cent bonds held by national banks, and take over with the purchase the right to issue notes to an am ount equal to the bank notes now outstanding, such new notes to be issued and redeemed in the manner elsewhere provided. It is proposed that the Secretary o f the Treasury shall, upon application o f the reserve association, exchange the 2 per cent bonds purchased for 3 per cent bonds of the United States payable after 50 years. The National Reserve Association is required to hold such bonds during the period o f its corporate existence, subject, however, to a right to sell at the option o f the Government not more than $50,000,000 in any one year after five years. The reserve association is, however, required to pay an annual franchise tax equal to 1 ^ per cent on the am ount o f the bonds so purchased and exchanged. The effect o f these provisions, taken together, is that the United States will be able to fund seven-ninths o f the national debt at a net interest charge of i}4 per cent, and the national banks will be enabled to avoid the risks o f being obliged to sell their bonds at a great sacrifice. This plan seems to the commission to be equitable alike to the Governm ent and to the national banks, and places upon the National Reserve Association the obligation to save both from the embarrassment and losses which would arise from any other disposition o f this mass o f Governm ent securities. Section 39 of the bill provides that the deposit balance of any subscribing bank in the National Reserve Asso ciation and any notes o f the National Reserve Association which it holds may be counted as a part o f its required 21 Nat i o na l Mo n e t a r y Commi ssion reserves. In order to protect or replenish these reserves and thus increase the loaning power o f individual banks the National Reserve Association is authorized, through its branches, to rediscount com m ercial paper for subscrib ing banks. Commercial paper which can be used for this purpose is defined in the bill as notes and bills o f exchange issued or drawn for agricultural, industrial, or com m ercial purposes, and does not include notes or bills issued or drawn for the purpose o f carrying stocks, bonds, or other investm ent securities. Commercial paper o f this descrip tion having not more than 28 days to run m ay be dis counted for individual banks. If having more than 28 days and not exceeding 90 days to rim, the rediscount may be made for individual banks, with the guaranty of the local association. The National Reserve Association may dis count the direct obligations o f individual banks, with the guaranty o f the local association, am ply secured by a pledge of collaterals o f unquestioned value, whenever, in the opinion o f the governor and executive com m ittee of the reserve association, concurred in by the Secretary o f the Treasury, a serious emergency exists and the public interests so require. The bill provides that the N ational Reserve Association shall fix its rates o f discount from tim e to tim e, which, when so fixed, shall be published, and shall be uniform throughout the U nited States. In view o f the great <iisparity which now exists in discount rates on com m ercial loans in different sections o f the country, serious doubts have been expressed as to whether this provision can be m ade effective. It can not be expected that an equality of com m ercial rates under all conditions and for all classes o f business can be secured at once b y such legislation. But with this provision adopted the tendency would be toward a gradual equalization o f rates at all points. It is apparent to the com m ission that we must provide that all the advantages and benefits which m ay accrue from 22 Na t ion a l M o net ary Co mmi s s i o n the organization of the N ational Reserve Association, including an absolute uniform ity in its discount rates, should be extended alike to every bank in every section. The greater uniform ity and steadiness of rates and better opportunities o f em ploym ent o f capital which should follow the adoption o f the legislation we propose will prove, we believe, an advantage to the banks o f the United States if we can judge b y the experience o f the joint-stock banks o f other countries. These banks in France, England, and Germany, with bank rates much lower than current com m ercial rates in this country and an approxim ate equality o f all other rates, are enabled, largely on account o f the steadiness and uniform ity to which we have referred, to pay dividends that are at least equal to those paid by the banks of the United States. If our bank managers could be assured o f constant em ploy ment for their loanable funds at steady rates they w ould w illingly accept lower discount rates in m any cases than those which are now current. An approxim ate equaliza tion o f rates would be o f great benefit to the people in sections o f the country where productive forces are only partially developed. This process o f equalization has already com m enced, and we are becom ing a hom ogeneous people in our industries and financial operations, and we m ay look forward to the tim e when, with the adoption o f the provisions we have suggested, the farmer o f the South or the farmer or miner o f our intermountain States will be able, with the same class o f credit or securities, to obtain the m oney requisite for his purposes at as low a rate as that current in other sections for similar loans. Section 40 provides that national banks m ay loan not more than 30 per cent o f their time deposits upon im proved and unencumbered real estate, such loans not to exceed 50 per cent o f the actual value o f the property, which property shall be situated in the vicinity or in the terri tory directly tributary to the bank. This privilege is *3 Nat i o na l Mo n e t a r y Commi ssi on not extended to National banks which act as reserve agents for other banks or trust com panies. W e have provided as far as possible for a uniform ity o f requirements with regard to capitalization, reserves, examinations, and reports o f all banks and trust com panies who shall be members o f the association. W ith reference to reserves, the bill provides that the same per centage o f reserves shall be required o f all subscribing banks in the same locality on demand deposits. Pro vision is made for a reserve on tim e deposits as defined in section 39, and all National and State banks and trust com panies must keep the percentage o f reserve on tim e deposits therein required. Sections 45, 46, and 47 o f the proposed bill contain re quirements for exam inations and reports which are appli cable alike to all subscribing institutions, whether operat ing under National or State charters. The reports of National bank examiners for national banks and State bank examiners for State banks and trust com panies are made available and acceptable whenever possible for the use of the National Reserve Association, provided that the stand ard o f such exam inations shall in all cases meet the require ments prescribed by the association. The association is also given the right, at any tim e, to examine or cause to be exam ined b y its own representatives any subscribing bank. Through these provisions it will be possible to avoid numerous and expensive duplications o f exam ination, which are not only troublesom e but unnecessary. A ll subscribing banks are required, under regulations to be prescribed, to make reports o f their condition m onthly, or oftener, showing the principal items o f their balance sheets The publicity of conditions secured by the required ex aminations and reports will prove, as a basis o f public confidence, a great advantage to all well-managed insti tutions. W e are living in an age when publicity, with reference to the management and condition of public 24 Nat i onal Monetary Co mmi s s i o n and quasi public institutions, is everywhere demanded. Publicity with reference to the condition o f financial institutions has vital interest for the great mass o f our people. W hile the shares in the National Reserve Association are owned, and can only be owned, by the banks which furnish all o f its capital, the fact that im portant privileges o f a public character are granted to the association led the commission to provide that its net earnings, after the pay ment of a dividend not exceeding 5 per cent to the share holders and the accum ulation o f a surplus not exceeding 20 per cent o f the paid-in capital, shall be paid to the United States in the form o f taxes upon its franchise. The bill provides that the National Reserve Association shall becom e the principal fiscal agent o f the United States, and as such shall serve through its branches as the cus todian o f the general funds of the Treasury, as the deposi tary o f its receipts, and the instrum entality through which its disbursements shall be effected. The system o f storing surplus revenues in independent vaults, and o f withdrawing the m oney from the channels o f business into useless inactivity, has not been follow ed in other coun tries for centuries, and is contrary to the m ethods follow ed by our State and municipal governments, as well as b y private corporations and individuals. It has proved peculiarly disturbing in this country on account of the large fluctuations in the Treasury balance, which within a single decade has fallen below $ 100,000,000 and risen above $300,000,000, thus adding to or w ith drawing from the country’s circulating medium w ith out any regard to the needs o f trade. O f late the sys tem has been largely modified by the transfer o f a considerable portion o f the surplus funds to selected national banks, but this policy inevitably involves unwar ranted and unequal distinctions and privileges for the banks so selected. The plan which we propose will do National Monetary Co mmi s s i o n away with such discrim inations, and will bring our Treas ury policy into line with the business m ethods of modern times. The adoption o f these proposed changes in Treasury methods will make possible a considerable reduction in the expenses o f the Treasury. ‘ Treasury officials estim ate that these reductions, growing out o f the elimination of the expenses connected with the Independent Treasury, will amount approxim ately to $ 1 ,000,000 annually. The Government will also effect large savings through the transfer o f the business o f bank-note issue and redemp tion. During the present year the expenses o f the Treasury, for which it is not reimbursable b y the banks, in connection with the issue of bank notes, amounts to $653,367, which could be saved in proportion as the national banks transfer their bonds to the National Reserve Association and retire their notes. The econo. mies, therefore, resulting to the Treasury from the adoption o f the proposed plan will probably amount to more than $ 1,500,000 annually. It is difficult to estimate the prob able revenues which will accrue to the United States from the taxes levied upon the reserve association and its franchise. A com petent authority has prepared an esti mate that, after the accum ulation o f the surplus and the contingent fund, and the paym ent o f the maximum divi dend o f 5 per cent to the shareholders, the Governm ent will receive $5,500,000 annually. This estim ate is based upon the minimum am ount o f business which the National Reserve Association will be likely to transact. The franchise tax on the am ount o f Goverm ent bonds pur chased, say $700,000,000, would am ount to $ 10,500,000 annually. Perhaps the m ost im portant defect in our m onetary system is to be found in its unscientific treatm ent o f the reserves o f individual banks. W e have described the character of this defect, and we have provided by the 26 N a t i on a l Monet ary Co mmi s s i o n term s o f the proposed bill what we believe to be an effec tive and logical remedy. W e propose that all or any por tion o f the cash reserves of the banks, including those which are now required by law to be held in their vaults, m ay be deposited with the reserve association, and when so deposited shall be counted as a part o f their legal reserve. This will transform m oney which is now deprived o f po tency and defensive power into a condition o f vitality and effectiveness. It is proposed that the reserves thus con centrated may be used by the reserve association, through its branches, for the assistance and support o f any bank or section when needed. The reserves of any subscribing bank can be replenished at any time by the discount or rediscount o f commercial paper in the manner elsewhere described. This involves the use of assets which otherwise wr ould not be available for this purpose to strengthen, whenever necessary, the loaning power o f the bank. These provisions taken together will enable the banks • to adopt the policy o f simultaneous strengthening o f re serves and extension o f credits which has been successful in every instance for half a century in the prevention o f panics or serious financial disturbances in the com m ercial nations o f Europe. They do not suffer from widespread bank suspensions or from a general paralysis o f credit operations. An advance in bank rates is used to curb speculation and prevent overexpansion o credit. The plan we subm it provides not only for a concentration and m obilization of cash reserves, but for a decentralization o f control by means o f the powers over distribution granted to local and district associations. The commission believe that the various provisions o f the bill for establishing a broader discount market will The provisions upon which we rely to accom plish this pur pose establish a standard o f com m ercial paper issued for agricultural and other purposes, which is made available »7 National Monetary Co mmi s s i o n for rediscount at the branches o f the reserve association. The establishment o f this standard will create a strong tendency to make the usual instruments o f commercial credit conform to its requirements; second, it allows national banks to the extent o f one-half o f their capital to accept properly secured drafts drawn upon them, drawn for instance with docum ents attached against cot ton, wheat, or other products in transit or in warehouse; third, it gives a new and wider m arket to dom estic bills o f exchange drawn on foreign countries and based on transactions in Am erican products or to pay for our pur chases abroad; fourth, it authorizes the National Reserve Association to buy and sell in foreign countries prime bills o f exchange, m any o f which would be of American origin. These various provisions give a national and international currency to notes, acceptances, and bills o f exchange based on the agricultural and other products o f the United States. The m ethods b y which our dom estic and international credit operations are now conducted are crude, expensive, and unworthy an intelligent people. The annual value of the products o f our industries is estim ated at thirty-five thousand m illion dollars. I f to this vast sum is added the cost o f transportation and distribution, we can realize that the m ovem ents o f these products through various stages from the producer to the consum er requires the use o f an enorm ous am ount o f credit and cash. T o form an accu rate estim ate of the m agnitude o f our credit structure, we should add to this our accum ulations o f wealth and capital and the sums used in connection with our foreign trade. It is the function o f a sound m onetary system to take care o f these vast operations w ithout friction and in such a manner as will prom ote the prosperity o f our people. The unim portant part which our banks and bankers take in the financing o f our foreign trade is disgraceful to a pro 38 National Monet ary Co mmi s s i o n gressive nation. W e export o f dom estic products about tw o thousand m illion dollars annually, and our annual im ports am ount approxim ately to fifteen hundred m illion dollars. Very m uch the larger portion o f this interna tional trade is financed by and pays tribute to foreign bankers. Take one illustration: Last year we exported about six hundred and fifty m illion dollars in value o f co tto n ; it was largely financed by 60 or 90 day bills drawn on Liverpool, London, Paris, or Berlin. This business was practically all done by foreign banks or bankers. The banks in the South and perhaps in New Y ork were enabled to collect a small com m ission on a part o f the business en route, but the lion’s share o f the profits accruing from the transactions, m illions of dollars in am ount, were paid to European merchants and bankers, and this large sum was in the last analysis paid b y the cotton planter. The disabilities from which our producers suffer in our foreign trade also apply largely to dom estic transactions. The man who raises cotton in Mississippi or cattle in Texas, or the fanner who raises wheat in the Northwest can not readily find a market in Chicago, New Y ork, or London, for the obligations arising out of the transactions connected with the grow th and m ovem ent o f his prod ucts, because the bankers o f these cities have no knowl edge o f his character and responsibility. W e propose to rem edy this condition in large part b y the use o f the standardized com m ercial paper we have described, and also b y the use o f acceptances o f local banks o f drafts drawn by a farmer or planter whose responsi bility is known to the bank and who m ay have deposited with it security on his products. Additional currency would be given to our com m ercial paper in the markets o f the world if official standards could be adopted, first, for the different grades and quali ties o f the staple agricultural products o f the country; *9 N a t ion a l Mo net ary Co mmi s s i o n second, for the methods used in preparing such products for the m arket; third, for uniform ity o f bills of lading; fpurth, for the efficient and responsible management of warehouses and elevators used for the storage and delivery of agricultural products. A wider dom estic market for the com m ercial paper we have described will be found in the changes which are likely to ake place under the provisions o f the bill subm itted, in the investm ent o f the surplus funds of the banks, and b y surplus funds in this connection we do not refer to m oneys deposited with reserve agents, but to funds for which there m ay be no legitim ate local demand. The surplus funds referred to are now deposited perhaps through correspondents in New Y ork at 2 per cent interest. The New Y ork banks are usually obliged to loan them on call on stock exchange collaterals, inducing at times dangerous speculative conditions, with the probability that when the m oney is withdrawn the necessary calling o f loans may cause disturbances in reserves and in the market and som e times lead to panics. W e propose by the provision o f the bill subm itted to enable the banks to invest their surplus funds of the character we have described in notes or bills of exchange representing the industries or the products o f the United States. It m ay be that they will not be able in making these loans to obtain the full rate current for discounts o f com m ercial paper, as they will have to com pete with foreign banks for a portion o f the business, but they will certainly receive more than 2 per cent for their m oney, and they will have in their portfolio com m ercial paper created for legitim ate purposes which they can take to the district branch and have transform ed into cash or a cash credit at any hour of any business day o f the year. W e believe that these provisions for creating new classes of investm ent obligations by establishing a standard of com m ercial bills to be used in m oving and caring for the 30 n at ion a l Mo n et a r y Co mmi s s i o n agricultural and other products o f the country, constitute very im portant features in our plan of reorganization. The creation of these new standards for foreign and do m estic bills should have an im portant influence upon the status o f the United States in the financial world. It should make a dom estic docum entary bill, drawn b y a producer anywhere in the U nited States, drawn in dollars and cents, equal in currency and in value to the highest form of credit in the markets of the world. W e ought to make New Y ork and our other financial centers equal in im portance with any in Europe. W e ought to place our financial institutions where they properly belong— in a class with the best and strongest in the world. Section 57 of the bill subm itted provides for the incor poration of banks to do business in foreign countries. W e assume that it is not necessary to call attention to the desirability o f making every reasonable effort to prom ote our foreign trade and to establish closer com m ercial and financial relations with foreign countries. The im pedi ments in the way of the developm ent of our international trade are numerous. Perhaps none of these is more im portant than the absence o f Am erican banking facilities in other countries and the lack o f knowledge abroad o f our fin an cial resources and of the strength and character of our banking institutions. The status o f the United States as one of the great powers in the political world is now universally recognized, but we have yet to secure recognition as an im portant factor in the financial world. This condition of affairs is likely to remain un changed as long as practically all our purchases and sales abroad are financed by foreign bankers. W e antici pate that the changes in the currents o f trade which will follow the opening o f the Panama Canal will tend to the enlargement o f our international com m erce. W e shall, at least, be brought into closer contact from a transportation standpoint with m any o f the States o f South America and 31 N a t ion a l Mo n e t ar y Co mmi s s i o n the countries o f the Orient. W e shall certainly be disap pointed as to the character and extent of the advantages o f this change unless we take some practical steps o f a positive character to secure for our merchants and bankers advantages in the countries we have named equal to those enjoyed b y their com m ercial and industrial rivals. The establishm ent o f American banks is essential in coun tries where we have a right to expect an enlargement o f our trade. In preparing the bill to establish the National Reserve Association the com m ission has been impressed with the necessity o f inserting provisions that w ould prevent beyond question the possibility o f its control by any cor poration or com bination o f corporations, banks or other wise, b y any individual or com bination o f individuals for selfish or sinister purposes. N o provision o f the bill to reconstruct our m onetary system is o f m ore vital im por tance than this. T o-day the financial interests o f the whole country depend, in times o f trouble, upon what is popularly known as “ W all Street.” Those who express fears o f the future dom ination o f W all Street seem to lose sight o f the fact that the dom ination o f New Y ork is an accom plished fa ct; that we are now staking the safety of all o f our banking resources on the patriotic character and business ability o f bank managers in New Y ork whose hands are tied in emergencies b y the restrictions o f a defective system and unwise legislation. The responsi bilities o f continuing this control are too enormous, the risks o f failure are too great, for this condition to be toler ated long. In our judgm ent the only effective remedy will be found in the national organization suggested, with the power to maintain the independence o f banks under all circum stances and with branches which will be relief centers at various points throughout the country, each with local self-governm ent. The reserve cities, the reserve agents o f the country banks, and individual banks generally de- 3s National Monetary Co mmi s s i o n pend upon the banks o f New Y ork. This is naturally so, because New Y ork, with her vast accum ulations o f capital, is the m ost im portant financial center in the country. When any serious financial disturbance occurs in New Y ork— like the bank suspensions in 1907— and New Y ork fails to respond to the drafts from other sections, the country suspends. This dangerous condition o f depend ence will continue until we have a thorough reorganiza tion o f our banking system. Every financial institution in the United States is in peril whenever confidence is destroyed in the strength o f the New Y ork banks or in the wisdom o f their management. In the provisions o f the bill for the election o f directors o f the National Reserve Association we provide for 39 directors, 2 to be elected by each of the 15 districts defined in the bill, and 9 additional directors to be elected b y representatives of stock holdings in the association. W e propose to lim it the representation o f any one dis trict to 3 out of the 39 directors elected, and under this plan every district will have 2 and none can have more than 3 directors. The New Y ork district under these provisions, with 29 per cent o f the banking resources of the country, would have 8 per cent of the representation on the board; New England, with 12 per cent o f the resources, would have 8 per cen t o f the representation; the Eastern States, as defined in the bill, with 41 per cent o f resources, would have 15 per cent o f representation; the Middle W est, with 24 per cent o f resources, would have 31 per cent o f representation; the Southern States, with 11 per cent o f resources, would have 23 per cent o f representation; and the W estern and Pacific States, with 12 per cent of resources, would have 23 per cent o f representation. The New England, East ern, and Middle W est States, taken together, with 77 per cent o f the resources, could elect only 21 out o f the 46 directors in the Reserve Association, while the Southern, 22306— 12-----3 33 National Monetary Co mmi s s i o n W estern, and Pacific States, with 23 per cent o f the resources, m ight have 46 per cent o f the representation. These percentages o f representation have been based upon the theory that the New England, Eastern, and Middle W estern States, b y reason o f their preponderance o f cap ital, w ould be entitled to elect the maximum number o f 3 directors for each district. In order to effect a com bination to secure a m ajority o f the directors; the votes o f eight districts would be nec essary, and with New England having one, the Eastern States tw o, and the Middle W est four, one other district would be necessary, showing that no com bination o f Eastern and Middle W est, with other interests could be made which did not include more than 80 per cent o f the banking power o f the country. W e think that this statem ent must o f itself show con clusively that there can be no local dom ination— no dom ination o f selfish interests in this organization, and that fear o f possible W all Street control can have no sub stantial foundation. This equal representation of districts, unequal in size and im portance, in the election o f a m ajority of directors o f the National Reserve Association, follows the dem o cratic principle also deliberately adopted in the organiza tion o f local and district associations. For instance, in a local association we give to a bank with $25,000,000 capi tal no greater voting power in the election o f a m ajority o f the directors of the local association than a $25,000 bank. In our political institutions we have a similar idea in the provision of the Federal Constitution, which gives to every State, irrespective o f its size an equal representation in the Senate. This plan o f organiza tion, practically as now reported, was made public a year ago and has received every m anifestation o f general approval. It is based upon the theory that each section o f the country ought to be adequately represented on the 34 N at i onal M o n e t ar y Co mmi s s i o n board and that there exists such a solidarity in the in terests of all sections o f the country that no harm can com e to the interests o f any district through this unequal representation. Suggestions have been made favoring a banking scheme based on separate State or district organizations, each with independent functions, partaking somewhat o f the character o f existing clearing houses or o f the branches which we propose to create in the bill. The fatal objec tion, in the opinion o f the com m ission, to any plan o f this kind is found in the lack o f affiliation or means to insure cooperation between these different local organizations in the public interest. The national association which we propose to create can o f course only exercise the powers which are clearly delegated to it, but the grant o f the lim ited powers proposed in the bill is necessary for the success o f any plan which is to benefit the country at large. W e propose to create an institution which can, am ong other things, conserve the public credit; issue properly secured circulating notes; control m ovem ents o f gold and foreign exchange; receive and disburse the Treasury balances; insure the cooperation of all banks in the public interest; equalize banking and credit facilities in different sections o f the country and insure adequate assistance on reasonable terms to partially developed com m unities; secure uniform rates of discount; prevent interruption o f dom estic exchanges; prQvide means for replenishing cash reserves and for their concentration for use in any direction wherever needed, and establish standards o f notes and bills o f exchange issued for agricultural or other purposes. None of these results can be secured by the organization o f separate units in the manner suggested. There can be no satisfactory reform o f our m onetary system , no remedy for existing defects, which does not place upon the banks of the entire country, acting together through some 35 Nati onal M on et ary Commission responsible agency, the serious duty o f protecting public and private interests at times when they are im periled. This is am ply dem onstrated b y our experi ence with clearing-house organizations. The results we desire can not be secured through a headless aggregation o f independent organizations, which would be as helpless as the members o f a human organism w ithout a brain to coordinate their functions or heart action to vitalize their forces. The proposal to create a N ational Reserve Association has been criticized on the ground that its enactment would lead to an undue expansion o f credit and a danger ous inflation o f currency. W e have already stated our reasons for believing that this contention as applied to note issues has no foundation. It is true that we propose to create new instrumentalities and provide new facilities for an expansion o f credit whenever this is necessary for the welfare o f our industries, or to prevent panics or avert dangerous m onetary disturbances. W e believe that credit properly organized and managed is one o f the m ost potent factors in the developm ent of communities and nations. The broad question we have to consider is whether the facilities which we propose to create can be dr are likely to be used in such a manner as to produce dangerous overexpansion. In this connection the experience o f other countries where facilities exist similar to those which we propose will afford valuable lessons. In none o f the leading coun tries o f Europe are there any statutory lim itations upon credit expansion. In fact there is no limitation what ever, either b y law or custom . This is true not only o f the central banks but also o f the join t-stock banks of these countries. None of these banks is required b y law to hold reserves. Each bank acts for itself in this respect. O f course, self-interest, custom , and public 36 Na t ion a l M on et ary Co mmi s s i o n opinion lead the banks o f the great com m ercial nations to hold cash and liquid assets as reserves against their lia bilities. Their cash reserves are kept alm ost entirely in central institutions and not in their own vaults. In this country we have no legal restriction upon credit expansion except such as is involved in our statutory provisions for fixed reserves. In ordinary times a bank can, by increasing its balance with its reserve agent, expand credit to the extent to which this is possible from increased reserves, and to this expansion there is no legal limit. W e believe that the bill we propose effectively guards against the dangerous abuse o f the facilities created. W e propose that a bank m ay, under certain conditions, re plenish its reserves and increase its loaning powers through rediscounts. The am ount of paper that can be redis counted for an individual bank is lim ited, first, b y the am ount of 28-day paper which it has available for the purpose; and second, by the provision that the aggregate am ount o f such rediscounts shall not exceed the capital of the bank. Discounts o f long-tim e paper and o f the direct obligations o f banks can only be made with the restrictions involved in the guaranty o f the local associa tion, and the guaranties o f the local association to the Reserve Association can not in any case exceed the capital and surplus o f the banks in the local association. The power given the national banks to accept properly secured drafts is lim ited in am ount to one-half the capital of the bank. W e give to the Reserve Association effective means to check speculation and to prevent undue expansion through the power to advance its discount rate. The provision that the Reserve Association shall hold a reserve of not less than 50 per cent against all o f its demand liabilities— a provision which is unique in m onetary legislation— and the provision 37 Na t ion a l M onet ary Co mmi s s i o n that a progressive tax shall be im posed on any deficiency o f reserves will, we believe, effectually discourage undue expansion of credit. The use o f a portion o f the cash reserves o f the banks b y the National Reserve Association will undoubtedly result in a legitim ate expansion of credit. This is inevitable. It is necessary, in cases of unusual demands for credit in times o f panic or anticipated trouble, that the banks should increase their reserves b y rediscounts, in order that they m ay extend assistance to those entitled to receive it. This, of course, involves expansion. W e can not prevent a condition like that of 1907 w ithout expansion on an extensive scale. The prime purpose o f the legislation suggested is to provide the means for a proper expansion o f credit and the necessary enlargement o f note issues in times o f trouble. Any unusual expansion o f credit or enlargement of note issues should, o f course, be follow ed b y healthy and legitim ate contraction, and we believe that this has been secured in the provisions o f the bill subm itted. Our main reliance for preventing undue expansion must, however, be found in the wise management o f the local and district associations and the reserve association. W e can not, o f course, endow men with wisdom , intelli gence, or conservatism by legislative enactment. The efficiency o f the institution will very largely partake of the character and capacity o f those who will be chosen to manage it. In the management o f financial institu tions the personal equation is o f the utm ost im portance. In the last analysis the success of every banking institu tion in the U nited States and in every other country depends upon the wisdom o f its management. A century of exceptionally sound and intelligent management has given to the Bank o f France the enviable position which it now holds. The im portant place which the Bank of England holds in the financial world is due to the wisdom 38 National Monetary Co mmi s s i o n o f the men who have controlled its operations and not to any legislative enactments. W e have taken every precaution to secure an honest, intelligent, and able management for the local and district associations and for the national association, and it is incredible, with the ample powers conferred by the terms o f the act, that they will allow the public interests to suffer from undue and destructive expansion. There must be collusion or failure on the part o f all to make such a result possible. W e can not suppose that the directors o f a local association would be likely to indorse the paper o f an individual bank to prom ote speculation or when dangerous expansion would be likely to follow . The officers and members o f the local associa tion would always be fully advised o f the condition o f an applicant, and when asked to becom e responsible for its obligations we can be sure that the guaranties would be given cautiously, and would be fully secured, and that they would be refused in cases o f doubt as to the character and purpose o f the paper presented. The acts o f the directors o f the branches and o f the reserve association will be open to public inspection and will be subject to the closest scrutiny b y the share holders o f the association and the public, and it is impossi ble to suppose that they would consent to the adoption o f a policy which would be ruinous to the vast material interests which they directly represent and destructive o f public and private credit. W e place in their hands ample powers to prevent this disastrous result, and there can be no reason to assume that they will not exercise it properly. W e believe that the very best men in every section o f the country will be selected as directors o f the proposed in stitutions. It can not be denied that there m ay be possibilities o f abuses, as there must be in every case of grants o f power where human agencies are em ployed, but this possibility 39 National Monetary Co mmi s s i o n should not lead us to refuse to create the facilities impera tively demanded for the progress and prosperity o f the American people, facilities which are enjoyed b y the pro ducers of every country com peting with them for the w orld’s markets. If we as a people should adopt the policy o f discouraging the use of every invention or o f refusing to avail ourselves o f every discovery in the arts and sciences on account o f the possibility that abuses might grow out o f their use or that their acceptance might disarrange the established order of things, we should unwisely place an insuperable obstacle in the pathway o f national progress. The com m ission appreciates the m agnitude o f the duties assigned to it o f constructing a m onetary system that will provide for the present and future welfare o f the Am erican people. The questions involved in this problem affect the vital interests o f the people of every class and every section. W e were required to devise a system so com prehensive that its beneficial effects will b e felt equally by wage earners, farmers, manufacturers, and all others engaged in productive industries, a plan which will inspire hope and confidence in all those who are responsible for the uninterrupted progress and prosperity o f a great people. The far reaching consequences o f fundam ental changes in a m onetary system were graphically expressed by Sir R obert Peel in his opening statem ent with reference to the English bank act o f 1844. He said: “ There is no contract, public or private, no engage ment, national or individual, which is unaffected by it. The enterprises o f com m erce, the profits o f trade, the arrangements made in all the dom estic relations o f society, the wages o f labor, pecuniary transactions o f the highest am ount and o f the lowest * * * the com m and which the coin o f the smallest denom ination has over the neces 40 National M on et ar y Co mmi s s i o n saries of life, are all affected by the decision to which we may com e on that great question which I am about to submit to the consideration of the com m ittee.” The adoption by the British Parliament o f the minis ter’s proposals established an im portant landmark in the history o f m onetary legislation. In the construction o f an adequate m onetary system for the United States, the task o f the commission was rendered more difficult from the fact there were no pre cedents that we could follow , and no system in existence that to any considerable extent could be made applicable to existing or prospective conditions in the United States. W e were therefore obliged to originate a plan which would answer the exacting requirements o f American conditions that would meet the needs o f a progressive nation, with its hundred millions o f energetic and enter prising people, whose developm ent has been im peded by a defective and inefficient m onetary system. The plan we propose is essentially an American system , scientific in its m ethods, and dem ocratic in its control. 4* A BILL T o incorporate the National Reserve Association o f the U nited States, and for other purposes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the National Reserve Association o f the U nited States be, and it is hereby, created and established for a term o f fifty years from the date o f filing with the Com ptroller o f the Currency a certificate o f paid-in capital stock as herein after provided. It shall have an authorized capital equal in am ount to twenty per centum of the paid-in and un impaired capital of all banks eligible for membership in said National Reserve Association. Before said associa tion shall be authorized to com m ence business tw o hundred million dollars of the capital stock shall be subscribed and one hundred m illion dollars of its capital shall be paid in cash. The capital stock of said association shall be divided into shares of one hundred dollars each. The outstand ing capital stock m ay be increased from tim e to tim e as subscribing banks increase their capital or as additional banks becom e subscribers or m ay be decreased as sub scribing banks reduce their capital or leave the association by liquidation. The head office of the National Reserve Association shall be located in W ashington, in the District o f Columbia. SEC. 2. Upon duly making and filing with the Com p troller o f the Currency the certificate hereinafter required the National Reserve Association o f the United States shall becom e a body corporate and as such and by that name shall have power— First. T o adopt and use a corporate seal. 43 National Monet ary Co mmi s s i o n Second. T o have succession for a period o f fifty years from the date of said certificate. Third. T o make all contracts necessary and proper to carry out the purposes o f this act. Fourth. T o sue and be sued, com plain and defend, in any court o f law or equity, as fully as natural persons. Fifth. T o elect or appoint directors and officers in the manner hereinafter provided and define the r duties. Sixth. T o adopt by its board o f directors by-laws not inconsistent with this act, regulating the manner in which its property shall be transferred, its general busi ness conducted, and the privileges granted to it by law exercised and enjoyed. Seventh. T o purchase, acquire, hold, and convey real estate as hereinafter provided. Eighth. T o exercise b y its board o f directors or duly authorized com m ittees, officers, or agen t., subject to law, all the powers and privileges conferred upon the National Reserve Association by th act. Sec. 3. A ll national banks, and all banks or trust com panies chartered by the laws o f any State o f the United States or o f the D istrict o f Colum bia, com plying with the requirements for membership in the said National Reserve Association, hereinafter set forth, m ay subscribe to its capital to an am ount equal to tw enty per centum o f the paid-in and unimpaired capital of the subscribing bank, and not m ore nor less; and each o f such subscribing banks shall becom e a member o f a local association as hereinafter provided. F ifty per centum of the subscriptions to the capital stock of the National Reserve Association shall be fully paid in; the remainder o f the subscriptions or any part thereof shall becom e a liability o f the subscribers, subject to call and paym ent thereof whenever necessary to meet the obligations o f the National Reserve Associa tion under such terms and in accordance with such regu 44 National Monetary Co mmi s s i o n lations as the board of directors of the National Reserve Association may prescribe. The subscriptions of a bank or trust com pany incor porated under the laws o f any State or o f the D istrict of Colum bia to the capital stock o f the N ational Reserve Association shall be made subject to the follow ing conditions: First. That (o) if a bank, it shall have a paid-in and unimpaired capital o f not less than that required for a national bank in the same locality; and that (6) if a trust com pany, it shall have an unimpaired surplus o f not less than tw enty per centum o f its capital, and if located in a place having a population of six thousand inhabitants or less shall have a paid-in and unimpaired capital o f not less than fifty thousand dollars; if located in a city having a population o f more than six thousand inhabitants and not more than fifty thousand inhabitants, shall have a paid-in and unimpaired capital o f not less than one hun dred thousand dollars; if located in a city having a popu lation o f more than fifty thousand inhabitants and not more than tw o hundred thousand inhabitants shall have a paid-in and unimpaired capital o f not less than two hundred thousand dollars; if located in a city having a population o f more than tw o hundred thousand inhabit ants and not more than three hundred thousand inhab itants shall have a paid-in and unimpaired capital o f not less than three hundred thousand dollars; if located in a city having a population of more than three hundred thousand inhabitants and not more than four hundred thousand inhabitants shall have a paid-in and unim paired capital o f not less than four hundred thousand dollars, and if located in a city having a population of more than four hundred thousand inhabitants shall have a paid-in and umimpaired capital of not less thari five hundred thousand dollars. 45 N at ion a l M o ne t a r y Co mmi s s i o n Second. That it shall have and agree to maintain against its demand deposits a reserve o f like character and proportion to that required b y law o f a national bank in the same locality: Provided, however, That deposits which it m ay have with any subscribing national bank, State bank, or trust com pany in a city designated in the national banking laws as a reserve city or a central reserve city shall count as reserve in like manner and to the same extent as similar deposits o f a national bank with national banks in such cities. Third. That it shall have and agree to maintain against other classes o f deposits the percentages o f reserve required by this act. Fourth. That it shall agree to subm it to such examina tions and to make such reports as are required by law and to com ply with the requirements and conditions im posed by this act and regulations made in conform ity therewith. The words “ subscribing banks” when used hereafter in this act shall be understood to refer to such national banks, and banks or trust com panies chartered by the laws o f any State o f the United States or o f the D istrict o f Columbia, as shall com ply with the requirements for membership herein defined. Sec. 4. The Secretary of the Treasury, the Secretary o f Agriculture, the Secretary o f Commerce and Labor, and the Com ptroller o f the Currency are hereby designated a com m ittee to effect the organization of the National Reserve Association, and the necessary expenses o f said com m ittee shall be payable out o f the Treasury upon vouchers approved by the members o f said com m ittee, and the Treasury shall be reimbursed by the National Reserve Association to the full am ount paid out therefor. W ithin sixty days after the passage o f this act said com m ittee shall provide for the opening o f books for subscrip tions to the capital stock o f said National Reserve Asso ciation in such places as the said com m ittee m ay designate. 46 National Monetary Co mmi s s i o n Before the subscription o f any bank to the capital stock of the National Reserve Association shall be accepted, said bank shall file with the organization com m ittee or after organization with the National Reserve Association a certified copy o f a resolution adopted by the board o f directors o f said bank accepting all the provisions and liabilities im posed by this act and authorizing the presi dent or cashier o f said bank to subscribe for said stock. Sec. 5. W hen the subscriptions to the capital stock o f the National Reserve Association shall am ount to the sum of two hundred m illion dollars the organization com m ittee hereinbefore provided shall forthwith proceed to select fifteen cities in the United States for the location o f the branches o f said National Reserve A ssociation: Pro vided, That one branch shall be located in the New England States, including the States o f Maine, New Hampshire, Verm ont, Massachusetts, Rhode Island, and Connecticut; tw o branches in the Eastern States, including the States o f New Y ork, New Jersey, Pennsylvania, and Delaware; four branches in the Southern States, including the States o f Maryland, Virginia, W est Virginia, North Carolina, South Carolina, Georgia, Florida, Alabam a. Mississippi, Louis iana, Texas, Arkansas, K entucky, Tennessee, and also the District o f Colum bia; four branches in the Middle W estern States, including the States o f Ohio, Indiana, Illinois, Michigan, W isconsin, Minnesota, Iowa, and M issouri; four branches in the Western and Pacific States, including the States o f North Dakota, South Dakota, Nebraska, Kansas, Montana, W yom ing, Colorado, New M exico, Oklahoma, W ashington, Oregon, California, Idaho, Utah, Nevada, and Arizona. W hen the cities in which the branches are to be located have been selected the organization com m ittee shall forth with divide the entire country into fifteen districts, with one branch o f the National Reserve Association in each district: Provided, That the districts shall be apportioned 47 National Monetary Co mmi s s i o n with due regard to the convenient and custom ary course o f business and not necessarily along State lines. The districts m ay be readjusted, and new districts and new branches m ay from tim e to tim e be created by the directors o f the National Reserve Association whenever, in their opinion, the business o f the country requires. Sec . 6. A ll subscribing banks within a district shall be grouped b y the organization com m ittee or after organi zation, b y the National Reserve Association, into local associations o f not less than ten banks, with an aggre gate capital and surplus o f at least five m illion dollars, for the purposes hereinafter prescribed: Provided, That the territory included in each association shall be con tiguous and that in apportioning the territory due regard shall be had for the custom ary course o f business and for the convenience o f the banks form ing the association: Provided further, That in apportioning the territory to local associations com prising a district every bank and all o f the territory within said district shall be located within the boundaries o f some local association: And pro vided further, That every subscribing bank shall becom e a member only o f the local association o f the territory in which it is situated. The banks uniting to form a local association shall, b y their presidents or vice presidents, under authority from the board o f directors, execute a certificate in triplicate setting forth the name o f the association, the names o f the banks com posing it, its principal place o f business, its territorial limits, and the purposes for which it is organized. One copy o f this certificate shall be filed with the Com ptroller o f the Currency, one copy shall be filed with the National Reserve Association, and one copy shall be filed with the branch o f the National Reserve Association o f the district in which the local association is included. Upon the filing o f such certifi cates the local association therein named shall becom e a 4S N at ion a l Mo net ar y Co mmi s s i o n body corporate and b y the name so designated m ay sue and be sued and exercise the powers o f a body corporate for the purposes m entioned in this act, and not otherwise. The local associations in each district m ay be readjusted from tim e to tim e and new associations m ay be authorized b y the directors o f the National Reserve Association. S ec . 7. Each local association shall have a board o f directors, the number to be determined by the by-laws o f the local association. Three-fifths o f that number shall be elected by ballot cast by the representatives o f the banks that are members o f the local association, each bank having one representative and each representative one vote for each o f the positions to be filled w ithout reference to the number o f shares which the bank holds in the N ational Reserve Association. Tw o-fifths o f the whole number of directors of the local association shall be elected b y the same representatives o f the several banks that are members o f the association, but in voting for these additional directors each representative shall be entitled to as m any votes as the bank which he represents holds shares in the National Reserve Association: Pro vided, That in case forty per centum o f the capital stock in any subscribing bank is owned directly or indirectly by any other subscribing bank, or in case forty per centum o f the capital stock in each o f tw o or more sub scribing banks, being members o f the same local associa tion, is owned directly or indirectly b y the same person, persons, copartnership, voluntary association, trustee, or corporation, then and in either o f such cases, neither o f such banks shall be entitled to vote separately, as a unit, or upon its stock, except that such banks acting together, as one unit, shall be entitled to one vote, for the election o f the board o f directors o f such local association. In no case shall voting b y proxy be allowed. The authorized representative o f a bank, as herein provided, shall be its president, vice president, or cashier. 22306— 12-----4 49 N a t i on a l M on et ary Co mmi s s i on Each director shall take an oath that he will, so far as the duty devolves upon him, diligently and honestly administer the affairs o f such association and will not knowingly violate or w illingly perm it to be violated any o f the provisions o f this act. The directors originally elected shall hold office until the second Tuesday in February im m ediately follow ing their election, and thereafter the directors shall be elected annually on that date and shall hold office for the term o f one year. The board o f directors o f the local association shall have authority to make by-law s, not inconsistent with law, which shall be subject to the approval o f the National Reserve Association. Sec . 8. Each o f the branches o f the N ational Reserve Association shall have a board o f directors, the number, not less than tw elve in addition to the ex officio member, to be fixed by the by-laws o f the branch. These directors shall be elected in the follow ing manner: The board o f directors o f each local association shall elect b y ballot a voting representative. One-half o f the elected directors o f the branch shall be elected by the vote o f such representatives, each representative having one vote for each o f the positions to be filled, w ithout reference to the number o f shares which the banks com posing the associa tion which he represents holds in the National Reserve Association. One-third o f the elected directors shall be elected by the same voting representatives, but each v o t ing representative in this case shall have a number o f votes equal to the number o f shares in the National Reserve Association held by all the banks com posing the local association which he represents. The remain ing one-sixth o f the directors shall be chosen by the direc tors already elected and shall fairly represent the agri cultural, com m ercial, industrial, and other interests of 50 N at ion a l M one t ar y Co mmi s s i o n the district and shall not be officers nor, while serving, directors of banks, trust com panies, insurance com panies, or other financial institutions. The manager o f the branch shall be ex officio a member o f the board of directors o f the branch and shall be chairman o f the board. Each director shall take an oath that he will, so far as the duty devolves upon him, diligently and honestly ad minister the affairs o f such association and will not know ingly violate or willingly permit to be violated any of the provisions of this act. All the members o f the board of directors o f the branch except the ex officio member shall at the first meeting o f the board be divided into three classes. One-third o f the directors shall hold office until the first Tuesday in March im m ediately follow ing the election; one-third o f the direc tors shall hold office for an additional period o f one year after the first Tuesday in March im m ediately follow ing the election; the remaining one-third o f the directors shall hold office for an additional period o f tw o years after the first Tuesday in March im m ediately follow ing the election. All elections shall be held on the first Tuesday in March o f each year, and after the first election all directors shall be elected for a term o f three years: Provided, That the by-law s o f the N ational Reserve Association shall pro vide for the manner o f filling any vacancies which m ay occur in the board of directors of the branches. The board o f directors of the branch shall have author ity to make by-law s, not inconsistent with law, which shall be subject to the approval o f the N ational Reserve Association. Sec. 9. The N ational Reserve Association shall have a board o f directors, to be chosen in the follow ing manner: First. Fifteen directors shall be elected, one by the board of directors o f each branch o f the National Reserve Asso ciation. In case the number o f districts shall be increased si National Monet ary Co mmi s s i o n hereafter, each additional district shall be entitled to elect an additional director o f this class. Second. Fifteen additional directors shall be elected, one by the board of directors o f each branch o f the National Reserve Association, who shall fairly represent the agricul tural, com m ercial, industrial, and other interests o f the district, and who shall not be officers nor, while serving, directors o f banks, trust com panies, insurance com panies, or other financial institutions. In case the number o f dis tricts shall be increased hereafter, each additional district shall be entitled to elect an additional director of this class. Third. Nine additional directors shall be elected by voting representatives chosen b y the boards o f directors o f the various branches, each o f whom shall cast a number o f votes equal to the number o f shares in the National Reserve Association held by the banks in the branch which he represents. N ot m ore than one o f the directors o f this class shall be chosen from one district. Directors o f each of the three classes named above shall be residents o f the district from which they are elected. Fourth. There shall be seven ex officio members o f the board o f directors, nam ely: The governor o f the National Reserve Association, who shall be chairman o f the board, tw o deputy governors o f the N ational Reserve Association, the Secretary o f the Treasury, the Secretary o f Agriculture, the Secretary o f Commerce and Labor, and the Comp troller o f the Currency. N o member o f any national or State legislative body shall be a director of the N ational Reserve Association, nor o f any o f its branches, nor o f any local association. A ll the members o f the board, except the ex officio members, shall at the first m eeting o f the board be divided into three classes. O ne-third o f the directors shall hold office until the first Tuesday in April im m ediately follow ing the election; one-third o f the directors shall hold office National Monet ary Co mmi s s i o n for an additional period o f one year after the first Tuesday in April im m ediately follow ing the election; the remaining one-third o f the directors shall hold office for an additional period of tw o years after the first Tuesday in April imme diately follow ing the election. A ll elections shall be held on the first Tuesday in April o f each year, and after the first election all directors shall be elected for a term o f three years: Provided, That all directors provided for in sections seven, eight, and nine o f this A ct shall serve until their successors have qualified: And provided further, That the by-law s of the N ational Reserve Association shall provide for the manner of filling any vacancies which m ay occur in the board of directors o f the N ational R e serve Association. Each director shall take an oath that he will, so far as the duty devolves upon him, diligently and honestly administer the affairs of such association and will not knowingly violate or willingly perm it to be violated any o f the provisions o f this act. The board of directors o f the National Reserve Asso ciation shall have authority to make by-law s, not incon sistent with law, which shall prescribe the manner in which the business o f said association shall be conducted and the privileges granted to it b y law exercised and enjoyed. Sec. i o . The executive officers o f the National Reserve Association shall consist o f a governor, tw o deputy g ov ernors, a secretary, and such subordinate officers as m ay be provided by the by-laws. The governor o f the National Reserve Association shall be selected b y the President of the U nited States from a list o f not less than three sub m itted to him by the board o f directors o f said association. The person so selected shall thereupon be appointed by the said board as governor o f the N ational Reserve Association for a term o f ten years, subject to rem oval for cause b y a tw o-thirds vote of the board. There shall be tw o S 3 National Monet ary Co mmi s s i o n deputy governors, to be elected b y the board, for a term o f seven years, subject to rem oval for cause b y a m ajority vote o f the board. The tw o deputy governors first elected shall serve for term s o f four years and seven years, respec tively. In case o f any vacancy in the office o f deputy governor his successor shall be elected to fill the unexpired term. In the absence o f the governor or his inability to act the deputy who is senior in point o f service shall act as governor. The board o f directors shall have authority to appoint such other officers as m ay be provided for by the by-laws. SEC. i i . W hen the N ational Reserve Association is duly organized its board of directors shall call upon the subscribing banks for a paym ent o f fifty per centum on the am ount o f their subscriptions to the capital stock o f said association. W hen one hundred m illion dollars of capital have been paid in the board o f directors shall at once proceed to execute and file with the Secre tary o f State a certificate showing the paym ent of one hundred m illion dollars on capital stock, and they shall further file with the Com ptroller o f the Currency a certifi cate showing the title and location o f each bank which has subscribed to the capital stock o f the N ational Reserve Association, the num ber o f shares subscribed by each, and the am ount paid thereon. SEC. 12. Shares o f the capital stock o f the National Reserve Association shall not be transferable, and under no circum stances shall they be hypothecated nor shall they be owned otherwise than b y subscribing banks, nor shall they be owned by any such bank other than in the proportion herein provided. In case a subscribing bank increases its capital it shall thereupon subscribe for an additional am ount.of the capital o f the N ational Reserve Association equal to tw enty per centum o f the bank’s increase o f capital, paying therefor its then book value as shown b y the last published statem ent o f said asso 54 National Mo n et ary Co mmi s s i o n ciation. A bank applying for membership in the National Reserve Association at any tim e after its for m ation must subscribe for an amount o f the capital o f said association equal to twenty per centum of the capital o f said subscribing bank, paying therefor its then book value as shown by the last published statem ent o f said association. \\ hen the capital of the National Reserve Association has been increased either on account o f the increase o f capital o f the banks in said association or on account o f the increase in the membership o f said association, the board o f directors shall make and execute a certificate showing said increase in capital, the am ount paid in and by whom paid. This certificate shall be filed in the office o f the Com ptroller of the Currency. In case a subscribing bank reduces its capital it shall surrender a proportionate amount o f its holdings in the capital o f said association, and if a bank goes into vol untary liquidation it shall surrender all o f its holdings o f the capital o f said association. In either case the shares surrendered shall be canceled and the bank shall receive in paym ent therefor a sum equal to their then book value as shown by the last published statem ent o f said associa tion. If any member o f the National Reserve Association shall becom e insolvent qnd a receiver be appointed, the stock held by it m said association shall be canceled and the balance, after paying all debts due by such insolvent bank to said association (such debts being hereby declared to be a first lien upon the paid-in capital stock), shall be paid to the receiver o f the insolvent bank. W henever the capital stock of the N ational Reserve Association is reduced, either on account o f the reduction in capital o f members o f said association or the liquidation or insolvency o f any member, the board o f directors shall make and execute a certificate showing such reduction o f capital stock and the amount repaid to each bank. This 5 5 National M on et ary Co mmi s s i o n certificate shall be filed in the office of the Com ptroller o f the Currency. Sec. 13. The National Reserve Association and its branches and the local associations shall be exem pt from local and State taxation except in respect to taxes upon real esiate. SEC. 14. The directors o f the National Reserve Associa tion shall annually elect from their number an executive com m ittee and such other com m ittees as the by-law s o f the N ational Reserve Association m ay provide. The exec utive com m ittee shall consist o f nine members, o f which the governor o f the N ational Reserve Association shall b e ex officio chairman and the tw o deputy governors and the Com ptroller o f the Currency ex officio members, but not m ore than one o f the elected members shall be chosen from any one district. The executive com m ittee shall have all the authority which is vested in the board o f directors, except the pow er of nom ination, appointm ent, and rem oval of the governor and deputy governors and except such as m ay be specifi cally delegated by the board to other com m ittees or t o the executive officers, or such as m ay be specifically reserved or retained b y the board. Sec . 15. There shall be a board o f exam ination elected annually b y the board o f directors from am ong their num ber, excluding the members o f the executive committee, o f which the Secretary o f the Treasury shall be ex officio chairman. It shall be the duty o f this board to care fully exam ine the condition and the business o f the National Reserve Association and o f its branches and to make a public statem ent o f the result o f such examine tion at least once a year. Sec. 16. Each branch shall have a manager and a dep uty manager appointed from the district by the governor o f the National Reserve Association with the approval o f the executive com m ittee o f said association and the board o f 56 National Monetary Co mmi s s i o n directors o f the branch, and subject to rem oval at any tim e by the governor with the approval of the executive com m ittee of the National Reserve Association. The powers and duties o f the manager and deputy manager and o f the various com m ittees o f the branches shall be pre scribed by the by-law s o f the National Reserve Association. Sec. 17. The directors of each local association shall annually elect from their number a president, a vice presi dent, and an executive com m ittee, whose powers and duties shall be determined by the by-laws o f the local association, subject, however, to the approval o f the N ational Reserve Association. Sec. 18. The National Reserve Association shall cause to be kept at all tim es, at the head office o f the associa tion, a full and correct list o f the names o f the banks owning stock in the association and the number of shares held by each. Such list shall be subject to the inspection o f all the shareholders o f the association, and a copy thereof on the first M onday of July of each year shall be trans m itted to the Com ptroller of the Currency. Sec. 19. The earnings o f the National Reserve Asso ciation shall be disposed o f in the follow ing manner: A fter the paym ent o f all expenses and the franchise and other taxes not provided for in this section the share holders shall be entitled to receive an annual dividend of four per centum on the paid-in capital, which dividend shall be cum ulative. Further annual net earnings shall be disposed of as follow s: First, a contingent fund shall be created, which shall be maintained at an am ount equal to one per centum on the paid-in capital, and shall not exceed in any event tw o m illion dollars and shall be used to meet any possible losses. Such fund shall, upon the fin a l dissolution o f the National Reserve Association, be paid to the United States and shall not under any circum stances be included in the book value of the stock or be paid to the shareholders. Second, one-half of additional net earnings 57 National Monet ary Co mmi s s i o n shall be paid in to the surplus fund of the National Reserve Association until said fund shall am ount to tw enty per centum o f the paid-in capital, one-fourth shall be paid to the United States as a franchise tax, and one-fourth shall be paid to the shareholders, until the shareholders’ dividend shall amount to five per centum per annum on the paid-in capital: Provided, That no such dividends, ex clusive o f the cum ulative dividends above provided for, shall at any time be paid in excess o f five per centum in any one year. W henever and so long as the contingent fund has been provided for and the five per centum dividend has been paid to shareholders one-half of the additional earnings shall be added to the surplus fund, and onehalf shall be paid to the United States as a franchise tax. W henever and so long as the surplus fund o f the National Reserve Association amounts to twenty per centum of the paid-in capital and the shareholders shall have received dividends not exceeding five per centum, all excess earnings shall be paid to the United States as a franchise tax. S ec . 20. Any m em ber o f a local association m ay apply to such association for a guaranty o f the com m ercial paper which it desires to rediscount at the branch of the National Reserve Association in its district. Any such bank receiving a guaranty from a local association shall pay a com m ission to the local association, to be fixed in each case by its board o f directors. Expenses and losses in excess of com m issions shall be met by an assessment o f the members o f the ^ocal association in proportion to the ratio which their capital and surplus bears to the aggregate capital and surplus of the members of the local association, which assessment shall be made by its board o f directors, and the com m ission received for such guar anty, after the paym ent o f expenses and possible losses, shall be distributed am ong the several banks of the local 58 National Monetary Co mmi s s i o n association in the same proportion. A local association shall have authority to require security from any bank offering paper for guaranty, or it m ay decline to grant the application. The total amount of guaranties by a local association to the National Reserve Association shall not at any time exceed the aggregate capital and surplus of the banks form ing the guaranteeing association. Sec . 21. Any local association m ay by a vote of threefourths of its members and with the approval o f the National Reserve Association, assume and exercise such o f the powers and functions of a clearing house as are not inconsistent with the purposes o f this act. The National Reserve Association may require any local association to perform such services in facilitating the dom estic ex changes o f the N ational Reserve Association as the public interests m ay require. Sec . 22. All o f the privileges and advantages o f the National Reserve Association shall be equitably extended to every bank of any of the classes herein defined which shall subscribe to its proportion o f the capital stock o f the National Reserve Association and shall otherwise conform to the requirements of this act: Provided, That the N ational Reserve Association may suspend a bank from the privileges of membership for refusal to com ply with such requirements or for a failure for thirty days to maintain its reserves, or to make the reports required by this act, or for misrepresentation in any report or exam ination as to its condition or as to the character or extent o f its assets or liabilities. Sec . 23. The National Reserve Association shall be the principal fiscal agent o f the United States. The Govern ment o f the United States shall upon the organization of the N ational Reserve Association deposit its general funds with said association and its branches, and thereafter all receipts o f the Governm ent, exclusive o f trust funds, 59 National Monetary Co mmi s s i o n shall be deposited with said Association and its branches, and all disbursements b y the Governm ent shall be made through said association and its branches. Sec . 24. The Governm ent o f the United States and banks owning stock in the National Reserve Association shall be the only depositors in said association. All dom estic transactions o f the National Reserve Association shall be confined to the Government and the subscribing banks, with the exception of the purchase or sale of G ov ernment or State securities or securities o f foreign govern ments or o f gold coin or bullion. Sec . 25. The National Reserve Association shall pay no interest on deposits. Sec. 26. The National Reserve Association m ay through a branch rediscount for and with the indorsement of any bank having a deposit with it, notes and bills o f ex change arising out o f com m ercial transactions; that is, notes and bills o f exchange issued or drawn for agri cultural, industrial, or com m ercial purposes, and not including notes or bills issued or drawn for the purpose o f carrying stocks, bonds, or other investm ent securities. Such notes and bills must have a m aturity o f not m ore than tw enty-eight days, and must have been made at least thirty days prior to the date o f rediscount. The am ount so rediscounted shall at no tim e exceed the capi tal of the bank for which the rediscounts are made. The aggregate o f such notes and bills bearing the signature or indorsem ent o f any one person, com pany, firm, or corpo ration, rediscounted for any one bank, shall at no tim e exceed ten per centum o f the unimpaired capital and surplus o f said bank. Sec. 27. The National Reserve Association may through a branch also rediscount, for and with the indorsement o f any bank having a deposit with it, notes and bills o f exchange arising out o f commercial transactions as hereinbefore defined, having more than twenty-eight days, 60 N at ion a l M o ne t a r y Co mmi s s i o n but not exceeding four months, to rim, but in such cases the paper must be guaranteed by the local association of which the bank asking for the rediscount is a member. Sec . 28. W henever, in the opinion o f the governor o f the National Reserve Association, the public interests so require, such opinion to be concurred in by the executive com m ittee of the National Reserve Association and to have the definite approval o f the Secretary of the Treas ury, the National Reserve Association m ay through a branch discount the direct obligation o f a depositing bank, indorsed by its local association, provided that the in dorsem ent o f the local association shall be fully secured b y the pledge and deposit with it o f satisfactory securi ties, which shall be held by the local association for account o f the National Reserve A ssociation; but in no such case shall the amount loaned by the N ational R e serve Association exceed three-fourths o f the actual value o f the securities so pledged. Sec . 29. The power o f rediscount and discount granted to the National Reserve Association by sections tw entysix, tw enty-seven, and twenty-eight o f this act shall in each case be exercised through the branch in the district in which the bank making the application is located. SEC. 30. The National Reserve Association shall have authority to fix its rates o f discount from tim e to tim e, which when so fixed shall be published, and shall be uni form throughout the U nited States. Sec . 31. National banks are hereby authorized to accept drafts or bills o f exchange drawn upon them , having not more than four months to run, properly secured, and arising out o f com m ercial transactions as hereinbefore de fined. The am ount o f such acceptances outstanding shall not exceed one-half the capital and surplus o f the accept ing bank, and shall be subject to the restrictions o f section fifty-tw o hundred o f the Revised Statutes. 6t National Monetary Co mmi s s i o n Sec . 32. The National Reserve Association m ay, when ever its own condition and the general financial conditions warrant such investm ent, purchase from a subscribing bank acceptances o f banks or acceptors o f unquestioned financial responsibility arising out o f commercial trans actions as hereinbefore defined. Such acceptances must have not exceeding ninety days to run, and must be of a character generally known in the market as prime bills. Such acceptances shall bear the indorsement of the sub scribing bank selling the same, which indorsement must be other than that o f the acceptor. Sec . 33. The N ational Reserve Association m ay invest in U nited States bonds; also in obligations, having not m ore than one year to run, of the United States or its dependencies, or o f any State, or o f foreign governments. Sec . 34. The N ational Reserve Association shall have power, both at home and abroad, to deal in gold coin or bullion, to make loans thereon, and to contract for loans o f gold coin or bullion, giving therefor, when necessary, acceptable security, including the hypothecation o f any o f its holdings o f United States bonds. Sec. 35. The National Reserve Association shall have power to purchase from its subscribing banks and to sell, with or w ithout ts indorsement, checks or bills o f exchange, arising out o f com m ercial transactions as hereinbefore de fined, payable in such foreign countries as the board o f directors o f the National Reserve Association m ay deter mine. These bills o f exchange must have not exceeding ninety days to run, and must bear the signatures of tw o or more responsible parties, o f which the last one shall be that o f a subscribing bank. Sec. 36. The National Reserve Assoc.ation shall have power to open and maintain b anking accounts in foreign countries and to establ sh agencies in foreign countries for the purpose of purchasing, selling, and collecting foreign bills o f exchange, and it shall have authority to buy and 62 National M o n et a ry Co mmi s s i o n sell, with or w ithout its indorsement, through such cor respondents or agencies, checks or prime foreign bills o f exchange arising out of com m ercial transactions, which have not exceeding ninety days to nm , and which bear the signatures of tw o or more responsible parties. SBC. 37. It shall be the duty o f the National Reserve Association or any o f its branches, upon request, to trans fer any part o f the deposit balance o f any bank having an account with it to the credit of any other bank having an account with the National Reserve Association. If a de posit balance is transfeired from the books o f one branch to the books o f another branch, it m ay be done, under regulations to be prescribed by the National Reserve As sociation, by mail, telegraph, or otherwise, at rates to be fixed at the tim e by the manager of the branch at which the transaction originates. Sec. 38. The National Reserve Association m ay pur chase, acquire, hold, and convey real estate for the follow ing purposes and for no other: First. Such as shall be necessary for the im m ediate accom m odation in the transaction of the business either of the head office or o f the branches. Second. Such as shall be m ortgaged to it in good faith by way o f security for debts previously contracted. Third. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course o f its dealings. Fourth. Such as it shall purchase at sales under judg ments, decrees, or mortgages held by said association, or shall purchase to secure debts due to it. But the National Reserve Association shall not hold the possession o f any real estate under m ortgage or the title and possession o f any real estate purchased to secure any debts due to it for a longer period than five years. S ec . 39. All subscribing banks must conform to the follow ing requirements as to reserves to be held against deposits of various classes, but the deposit balance of any 6 s National Monetary Co mmi s s i o n subscribing bank in the National Reserve Association and any notes o f the National Reserve Association which it holds m ay be counted as the whole, or any part o f its re quired reserve: First. On demand deposits: National banks in differ en t localities shall maintain the same percentages of reserve against demand deposits as is now required by law, and the same percentages o f reserve against demand deposits shall be required o f all other subscribing banks in the same localities. Second. On time deposits: All tim e deposits and m oneys held in trust payable or maturing within thirty days shall be subject to the same reserve requirements as demand deposits in the same locality. All time deposits and m oneys held in trust payable or maturing more than thirty days from date shall be subject to the same reserve requirements as demand deposits for the thirty days, preceding their m aturity, but no reserves shall be required therefor except for this period. Such tim e deposits and moneys held in trust, payable only at a stated tim e not less than thirty days from date o f de posit, must be represented by certificates or instruments in writing and must not be allowed to be withdrawn before the tim e specified without thirty days’ notice. Sec. 40. N ational banks m ay loan not m ore than thirty per centum o f their time deposits, as herein defined, upon im proved and unencumbered real estate, such loans not to exceed fifty per centum o f the actual value o f the property, which property shall be situated in the vicinity or in the territory directly tributary to the bank: Provided, That this privilege shall not be extended to banks acting as reserve agents for banks or trust com panies. Sec . 41. All demand liabilities, including deposits and circulating notes, o f the National Reserve Association shall be covered to the extent of fifty per centum by a reserve of gold (including foreign gold coin and gold bul 64 N at ion a l M on e t ar y Co mmi s s i on lion) or other m oney of the U nited States which the national banks are now authorized to hold as a part of their legal reserve: Provided, That whenever and so long as such reserve shall fall and remain below fifty per centum the National Reserve Association shall pay a special tax upon the deficiency o f reserve at a rate increas ing in proportion to such deficiency as follow s: For each tw o and one-half per centum or fraction thereof that the reserve falls below fifty per centum a tax shall be levied at the rate of one and one-half per centum per annum: Provided further, That no additional circulating notes shall be issued whenever and so long as the amount of such reserve falls below thirty-three and one-third per centum o f its outstanding notes. Sec . 42. In com puting the demand liabilities of the N ational Reserve Association a sum equal to one-half of the am ount o f the United States bonds held by the as sociation which have been purchased from national banks, and which had previously been deposited by such banks to secure their circulating notes, shall be deducted from the am ount o f such liabilities. Sec . 43. The National Reserve Association shall make a report, showing the principal items o f its balance sheet, to the* Com ptroller o f the Currency once a week. These reports shall be made public. In addition, full reports shall be made to the Com ptroller o f the Currency by said association coincident with the five reports called for each year from the national banks. Sec , 44. All subscribing banks shall, under regulations to be prescribed by the National Reserve Association make a report m onthly, or oftener if required, to said association showing the principal items o f their balance sheets. Sec . 45. All reports of national-bank examiners in re gard to the condition of bank's shall hereafter be made in duplicate, and one copy shall be filed with the National 22306— 12-----5 65 N at ion a l M o ne t a r y Co mmi s s i o n Reserve Association for the confidential use of its execu tive officers and branch managers. Sec . 46. The N ational Reserve Association m ay accept copies o f the reports o f the national-bank examiners for subscribing national banks and also copies o f the reports o f State-bank examiners for subscribing State banks and trust com panies, in States where the furnishing o f such in form ation is not contrary to law : Provided, however, That the standard of such exam inations, both National and State, meets the requirements prescribed by the National Reserve Association. The N ational Reserve Association shall have the right at any tim e to exam ine or cause to be exam ined by its own representatives any subscribing bank. The N ational Reserve Association m ay make such paym ents to national and State examiners for such services re quired o f them as the directors m ay consider just and equitable. SEC. 47. A ll provisions o f law requiring national banks to hold or to transfer and deliver to the Treasurer of the United States bonds of the U nited States other than those required to secure outstanding circulating notes and G ov ernment deposits are hereby repealed. Sec . 48. There shall be no further issue o f circulating notes b y any national bank beyond the am ount now ou t standing. National banks m ay maintain their present note issue, but whenever a bank retires the whole or any part o f its existing issue its right to reissue the notes so retired shall thereupon cease. Sec . 49. The National Reserve Association shall, for a period o f one year from the date of its organization, offer to purchase at a price not less than par and accrued interest the tw o per centum bonds held b y sub scribing national banks and deposited to secure their circulating notes. The N ational Reserve Association shall take over the bonds so purchased and assume responsibility for the redem ption upon presentation o f outstanding 6 6 National M on et ary Co mmi s s i o n notes secured thereby. The National Reserve Association shall issue, on the terms herein provided, its own notes as the outstanding notes secured by such bonds so held shall be presented for redem ption and m ay issue further notes from time to tim e to m eet business requirements, it being the policy o f the United States to retire as rapidly as possible, consistent with the public interests, bondsecured circulation and to substitute therefor notes o f the National Reserve Association of a character and se cured and redeemed in the manner provided for in this act. SEC. 50. All note issues o f the National Reserve Asso ciation shall at all tim es be covered by legal reserves to the extent required by section forty-one o f this act and by notes or bills of exchange arising out o f com m ercial transactions as hereinbefore defined or obligations o f the United States. SEC. 51. Any notes o f the National Reserve Associa tion in circulation at any time in excess o f nine hundred m illion dollars which are not covered by an equal am ount of lawful m oney, gold bullion, or foreign gold coin held by ’Said association, shall, pay a special tax at the rate o f one and one-half per centum per annum, and any notes in excess of one billion tw o hundred m illion dollars not so covered shall pay a special tax at the rate o f five per centum per annum: Provided, That in com puting said amounts of nine hundred m illion dollars and one billion tw o hundred m illion dollars the aggregate amount o f any national-bank notes then outstanding shall be included. Sec . 52. The circulating notes of the National Re serve Association shall constitute a first lien upon all its assets and shall be redeemable in lawful m oney on pres entation at the head office of said association or any o f its branches. It shall be the duty of the National Reserve Association to maintain at all times a parity of value of its circulating notes with the standard estab 67 National Monetary Co mmi s s i o n lished by the first section o f the act of March fourteenth, nineteen hundred, entitled “ An act to define and fix the standard o f value, to maintain the parity o f all forms of m oney issued or coined by the United States, to refund the public debt, and for other purposes.” Sec . 53. The circulating notes o f the National Reserve Association shall be-received at par in paym ent o f all taxes, excises, and other dues to the United States, and for all salaries and other debts and demands owing by the United States to individuals, firms, corporations, or associations, except obligations of the Governm ent which are b y their terms specifically payable in gold, and for all debts due from or by one bank or trust com pany to an other, and for all obligations due to any bank or trust com pany. SEC. 54. The National Reserve Association and its branches shall at once, upon application and w ithout charge for transportation, forward its circulating notes to any depositing bank against its credit balance. Sec . 55. Upon application o f the National Reserve As sociation the Secretary o f the Treasury shall exchange the tw o per centum bonds o f the United States bearing'the circulation privilege purchased from subscribing banks for three per centum bonds of the United States w ithout the circulation privilege, payable after fifty years from the date o f issue. The N ational Reserve Association shall hold the three per centum bonds so issued during the period of its corporate existence: Provided, That after five years from the date o f its organization the Secretary o f the Treasury m ay at his option perm it the National Reserve Association to sell not m ore than fifty m illion dollars of such bonds annually: And provided further, That the U nited States reserves the right at any tim e to pay any o f such bonds before m aturity, or to purchase any o f them at par for the trustees o f the postal savings, or otherwise. 6 8 N a t ion a l M o ne t a r y Co mmi s s i o n Sec . 56. The National Reserve Association shall pay to the Governm ent a special franchise tax o f one and one-half per centum annually during the period o f its charter upon an am ount equal to the par value of such U nited States bonds transferred to it by the subscribing banks. S e c . 57. That banking corporations for carrying on the business of banking in foreign countries and in aid o f the com m erce of the United States with foreign countries and to act when required as fiscal agents o f the United States in such countries m ay be form ed by any number o f per sons, not less in any case than five, who shall enter into articles o f association which shall specify in general terms the object for which the banking corporation is form ed and may contain any other provisions not inconsistent with the provisions o f this section which the banking cor poration may see fit to adopt for the regulation and con du ct o f its business and affairs, which said regulations shall be signed, in duplicate, by the persons uniting to form the banking corporation and one copy thereof shall be forwarded to the Com ptroller o f the Currency and the other to the Secretary o f State, to be filed and preserved in their offices. That the persons uniting to form such banking corpora tion shall under their hands make an organization certi ficate which shall specify, first, the name assumed by such banking corporation, which name shall be subject to approval by the com ptroller; second, the foreign country o r countries or the dependencies or colonies o f foreign countries or the dependencies o f the U nited States where its banking operations are to be carried on ; third, the place in the United States where its home office shall be located; fourth, the am ount o f its capital stock and the number o f shares into which the same shall be divided; fifth, the names and places of residence o f the shareholders and the num ber o f shares held by each o f them , and, sixth, a declaration that said certificate is made to enable such 69 National Monetary Commission persons to avail them selves o f the advantages o f this section. That no banking corporation shall be organized under the provisions o f this section with a less capital than tw o m illion dollars, which shall be fully paid in before the banking corporation shall be authorized to com m ence business, and the fact of said paym ent shall be certified b y the Com ptroller o f the Currency and a copy o f his cer tificate to this effect shall be filed with the Secretary o f State: Provided, That the capital stock of any such bank m ay be increased at any tim e by a vote o f two-thirds of its shareholders with the approval o f the Com ptroller of the Currency and that the capital stock of any such bank which exceeds two m illion dollars m ay be reduced at any time to the sum o f tw o m illion dollars by the vote of shareholders owning tw o-thirds o f the capital. That every banking corporation form ed pursuant to the provisions of this section shall for a period o f tw enty years from the date o f the execution o f its organization certificate be a body corporate, but shall not be author ized to receive deposits in the United States nor transact any dom estic business not necessarily re lated to the business being done in foreign countries or in the dependencies o f the United States. Such banking corporations shall have authority to make acceptances, buy and sell bills o f exchange, or other com m ercial paper relating to foreign business, and to purchase and sell securities, including securities o f the United States or o f any State in the Union. Each banking corporation organized under the provisions of this section shall have power to establish and maintain for the transaction of its business a branch or branches in foreign countries, their dependencies, or the dependencies of the United States at such places and under such regulations as its board of directors may deem expedient. 70 ^National Monetary Commission A m ajority o f the shares o f the capital stock o f such bank ing corporation shall be held and owned by citizens o f the United States or corporations chartered under the laws ■of the United States or of any State o f the Union, and. a m a jo rity .o f the members of the board of directors o f such banking corporations shall be citizens o f the United States. Each director shall own in his own right at least -one hundred shares o f the capital stock of the banking corporation o f which he is a director. W henever the Com ptroller shall becom e satisfied o f the insolvency o f any such banking corporation he m ay appoint a receiver who shall proceed to close up such corporation in the same manner in which he w ould close a national hank, the disposition o f the assets o f the branches to be subject to any special provisions o f the laws o f the country under whose jurisdiction such assets are located. The annual m eeting o f every such banking corpora tio n shall be held at its home office in the United States, land every such banking corporation shall keep at its hom e office books containing the names o f all stock holders o f such banking corporation and members o f its board o f directors, together with copies o f the reports fur nished by it to the Com ptroller of the Currency exhibiting in detail and under appropriate heads the resources and liabilities o f the banking corporation. E very such bank ing corporation shall make reports to the Com ptroller of the Currency at such tim es as he m ay require, and shall be subject to exam inations when deemed necessary by the Com ptroller o f the Currency through examiners ap pointed by him ; the com pensation of such examiners to be fixed b y the Com ptroller o f the Currency. A ny such banking corporation m ay go into liquidation and be closed b y the vote o f its shareholders owning tw othirds o f its stock. Any bank doing business in the United States and being th e owner of stock in the National Reserve Association 7* National Monetary Commission m ay subscribe to the stock of any banking corpora tion organized under the provisions of this section, but the aggregate o f such stock held, b y any one bank shall not exceed ten per centum o f the capital stock o f the subscribing bank. SEC. 58. Congress reserves the right to alter or amend the provisions of this act to take effect at the end o f any decennial period from and after the organization o f the National Reserve Association. Sec . 59. A ll acts or parts of acts inconsistent with the provisions o f this act are hereby repealed. N elson W. A ldrich , Chairman. E dward B. V reeland , Vice Chairman. Julius C. B urrow s . E ugene H ale . H. M. T eller . H. D. Money . T heodore E. B urton . J as . P. T aliaferro . B oies P enrose . J ohn W. W eeks . R obt . W . B onynge . L. P. P adgett . G eo . F. B urgess . A. P. P u jo. G eo . W . P rince . J ames McL achlan . A. P iatt A ndrew , A ssistant to Commission. A rthur B. Shelton , Secretary. W ashington , January 8, /pi2 . & 7a