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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.

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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

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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

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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

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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

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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

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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.

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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

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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

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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

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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

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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

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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-

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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

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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
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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

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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

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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.

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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

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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

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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

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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

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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

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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

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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

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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

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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;

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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

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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

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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-

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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

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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

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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

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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

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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

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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

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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

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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

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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.

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.

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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

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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.

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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.

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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

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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

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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

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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

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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

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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

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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

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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

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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
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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

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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

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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

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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,

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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,

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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
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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

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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

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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

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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
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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

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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

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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.

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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

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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.

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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

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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 .

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Full text of Report of the National Monetary Commission

FRASER