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AFTERNOON PAPERS MAY
19i6
NOT EARLIER.
HOW THE FEDERAL RESERVE SYSTEM IS MEETING THE REQUIREMENTS
Address
of
A- C. MILLER
Member of the Federal Reserve Board
^
"
G
O
V
E
f
'
•
LIBRARY'
Delivered May 2U,
at the Annual Convention of the
MISSOURI BANKERS' ASSOCIATION
at St.
Louis.
RELEASED FOR PUBLICATION IN AFT2RM00N.?A?KHS. 0? MAY $U,lQl6.
^
HOW THE FEDSRAt RESERVE SYSTEM IS
MEETING THE RSQ,UIRE?.*Ei!TS.
* * * * *
The financial outlook for the United States has never
"been so full of interesting possibilities as at the present time,
. nor has it ever called for a more definite understanding of whence
wo have come, where we are at, and whither we are going.
course of the past year and a half we have replaced
In the
financial
dependence upon Europe by dependence upon ourselves and we have
also been able to extend a very considerable measure of financial
service to some of the warring nations, and to many of the neutral
countries of South America.
The record of our material and fi-
nancial progress in the past year and a half discloses
results
which are stupendous and seem little short of miraculous.
Much has been said of our new opportunities; but it
is Important that the banker, who has a very serious part in
shaping the course of business and tempering the spirit of the
community to a new situation, should recognize that the situation with which wo are confronted is not alone pregnant with opportunity, but i3 also weighted with serious
It i s ,
responsibility.
indeed, doubtful .whether any country in the history of
modern commerce ha3 ever been faced by a situation so calculated
• '
"7
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t-y
658
-2to chslllenge tho best of which it is capable in conceiving
and Carrying to fulfillment great plans.
It is a situation
which invites to a mastery in the world of finance and of
large affairs; but to attain this mastery we must first become masters of ourselves and of our own by developing to
highest efficiency instruments of direction and control
which match our splendid resources.
It calis* moreover, for
co-
a new type of business leadership and a capacity for
i
ordinated action on a larger scale than we have been accustomed to in order that we may be able to act with Wisdom,
vigor and effect in this new region of affairs and responsibilities into which we have entered*
It id fortunate,- indeed it would b6 difficult to
exaggerate tho degree of our good fortuhe>- that the most important and considerable step toward fitting ourselves to meet
tho now occasion should have been taken in advance of the gr6at
changes in the sphere of international relationships > which
are bound to come as one of the frodUltd 0i the war,
I
refer
of course to the establishment of our new banking organization^
tho Federal Reserve System.
That system, and what it stands for,
must bo, as indeed, it has already proved itself to be., our
chief reliance in meeting our new responsibilities and in turning our new opportunities to profitable account for ourselves
658
-3and to benefit for the rest of the world.
No agency or resource
in the field of finance which the nation today possesses or has
ever possessed is comparable in its potentialities to the Federal Reserve System.
It is, not only the newest thing in Amer-
ican finance, but also the best thing.
Until we definitely
understand this,, we are not in a position to do our best in
meeting the new occasion.
To recognize this is the beginning
of wisdom.
It is also well that we should recognize that the
atmosphere was never so propitious for the discussion of questions of finance upon the broad and high plane of national
interest and policy as now.
I believe I speak truly and with
strict fidelity to the historical record, when I say that for
the first time since wo, as a nation, began to make financial
history, questions of currency and finance and banking have
ceased to be political and party questions.
To have taken
the banking question out of politics, where it long fingered
to the prejudice of the nation's commercial and financial
interest, is a matter of sufficient moment and promise to entitle it to rank as a real achievement. Whatever differences
may have existed on questions of banking policy before the
-5-
establishment of the Federal Reserve System, they have pretty
much ceased to exist since.
The country, as you know, has sot
its approval upon the Federal Reserve Act as a piece of fundamental legislation on which to build and under which we are
to develop the banking system of our expanding industry and ,
commerce for dec?.des to come.
So well was the work of legis-
lation done, and so completely ha3 the result been accepted
and approved Tpy the business, banking and general public opinion, that the banking question has fortunately at last ceased
to be a problem of legislation and has become one of administration.
Congress has given us a superb instrumentality;
it
i3 for our bankers and those who are charged with the administration of the new law
strumentality
to do their part in using this new in-
wisely and effectively in strengthening the
financial foundations of our industry and promoting its
healthy, prosperous and steady growth.
The test of a banking system is the aid it gives
to productive enterprise by supplying its credit neods.
Banks
become powerful ana valuable auxiliaries in the industrial
system in proportion as' they give increased activity and
mobility to the community's industrial and commercial capital;
658
-5and "banking profits and prosperity are never go legitimate
and so fair an indication of the character and quality of the
serviae banks are rendering, as when they prosper and flourish
along with the comnvunities in which they exist.
The changes
which were made in our banking system under the Federal Reserve Act were designed to accomplish many different things,
but the goal toward which everything pointed was that of making the
nations
credit facilities more widely available
in all useful and legitimate ways for ihdustrial and commercial employment on tenns of safety, and of such ease as is
consistent with safety-
How far the new banking system is
fulfilling the promise of its sponsors and meeting the expectations of tha'nation, more particularly how it has met the
a
103ts which its first year and/half have brought, are questions of the kind which suggest themselves at a time when
the nation, throughout its length and breadth, is taking stock
of its capabilities and when "preparedness" is its watchword.
For the now system is no longer a theory, but a fact• Xt is
in actual operation, with a record which can be examined-,
and which can be tested by results.
-7-
The new "banking organization has already found its place
in the American financial system and has already made an enviable
history for i t s e l f .
Its influence has ndt only been felt in every
part of the country,, "but has reached across thd seas.
It has had
to meet conditions and circumstances in many respects more unusual
than could have been contemplated by its framers, and yet 30 well
contrived and so flexible is the structure of the new banking system that it has been found capable of adjusting itself to each new
condition.
It has thereby given evidence of its capacity for
growth and development along with the changing and expanding needs
of the .American credit and business system.
It is just this qual-
ity which takes the Federal Reserve Act out of the class of ordinary financial legislation and makes the new "banking organization
a system in a very real and far-reaching sense.
In breadth of
conception the Reserve Act is a constitution rather than a statute;
a financial constitution characterized,, as an organic act should be,
by that quality of adaptiveness which has always been the boast of
our great political constitution, and a quality which we have long
since come to regard as an essential, not to say the sovereign,
element in any great and vital piece of constructive legislation.
In reviewing the working of the Federal Reserve Banks I
wish to direct your attention to four or five aspects of the new
c
658
-7-'
system which in my judgment are calculated to disclose the capabilities of the system and the temper and wisdom of its administration.
1.
It has facilitated the growth and financing of the
country's enormous foreign trade.
2.
It has met the requirements of domestic trade, par-
ticularly the requirements of the crop-moving season and has
shown a capacity to ease and steady discount rates.
3.
It has shown capacity to absorb the redundant gold of
the country and restrain inflation.
b.
It has shown capacity to maintain an atmosphere of con-
fidence .
Growth and financing of foreign trade.
The financing of our foreign trade was always a sensitive point in our credit system, and foreign exchange has long "been
regarded as a very accurate "barometer of our international position.
The year 1915 witnessed the largest foreign trade ever experienced
"by this country, the export trade particularly attaining the colossal magnitude of $ 3 , 6 0 0 , 0 0 0 , 0 0 0 ,
an amount $ 1 , 0 0 0 , 0 0 0 , 0 0 0
of the highest amount hitherto recorded.
in excess
-9-
The large excess of exports over imports of merchandise
created a balance of trade in our favor of unprecedented
character
and dimensions and subjected our purchasers to the necessity of
resorting to the American money market in order to obtain fund3
with which to meet their obligationsi
The new banking system met
every requirement of this unprecedented situation without
culty.
diffi-
At no time since tho opening of the Reserve banks has
there e\'er been any doubt of the ability of our banking system,
by means of the newly established system of acceptance
or otherwise,
to take care of the financing
credits
of the country's ex-
ports, however large the excess of these over imports might become.
Tho growth in our exports has been continuous.
The last month for
which we have complete figures, March, 1916, shows exports over
$ 1 0 0 , 0 0 0 , 0 0 0 in excess of March, 1915, an aggregate of
$U09,850,~
U25, and which promises an estimated total for the year of between $ U , 0 0 0 , 0 0 0,000 and $ 5 , 0 0 0 , 0 0 0 , 0 0 0 .
\7c.en we contrast the
ease with which we now finance a volume of trade which would have
staggered tho imagination ,a few years ago, with the clumsy shifts
to which we were frequently
reduced under our old methods of fi-
nancing, we get some idea of how fundamentally and effectively our
banking machinery has been improved by substituting for a precarious dependence upon foreign f a c i l i t i e s those of our own making
and control.
You banker£3 w i l l recall the situation into which our
foreign exchange was plunged at the beginning of the European
war before our new banking machinery had been set in operation.
Our bankers, as had long been their custom, had drawn heavily
during the summer on England«
The estimated amount of our short
time indebtedness maturing before the first of January,
was from four to five hundred millions of dollars.
expected that
1915/
It had been
this would be taken care of by the proceeds of
cotton and grain b i l l s which would be drawn with the export of
crops.
The sudden suspension of our foreign trade and equally
sudden termination of our foreign banking credits left us in a
serious
position.
held in the office
I recall a conference of momentous import,
of the Federal Reserve Board and attended
by leading bankers identified with international financing,
at
which was discussed whether and how our accruing obligations
could bo met.
It was decided that they could be met and there-
fore should be met no matter at what inconvenience to ourselves
and no matter at what cost in the loss of gold.
By that act
was laid a foundation for the future of America as a world
banker and to the faith thus inspired in the integrity and the
capacity of the American banking system we owe very largely the
658
-10-'
enviable position that we have,
in the brief period of l i t t l e
more than a year, attained in the international money market*
Such a n embarrassment as we suffered in the early autumn of
191U is a l l but unthinkable under our new banking system, unless
there should be a breakdown of transportation facilities..
i s not a theory;
This
i t is a fact which is thoroughly attested by
the experience and events of the past year.
We have not only
received from Europe during the year 1915 over $'400,000,000
in
gold, but we have taken back American securities and arranged
additional credits to a combined total estimated at
$2,000,000,-
000.
A year ago dollar credits were practically unknown in
a
foreign centers;
lished
today dollar exchange i s / r e cognized and estab-
medium of international commerce and one of the most
prised, because tho most stable, unit of international payment..
The acceptance business, for many generations the peculiar domain of English banks and the source of much of England's prestige and power and profit in tanking, has been successfully naturalised on -American soil and is thriving.
figures are not available, but
Complete and
accurate
it is a safe statement that the
volume of acceptance credits created in behalf of the foreign trade
of this country has averaged for several months $ 1 0 0 , 0 0 0 , 0 0 0 and
©
658
now amounts to ovor $ 2 0 0 , 0 0 0 , 0 0 0 ;
serve banks to $ U 3 , 0 0 0 , 0 0 0 .
^nd the ataoufit held by the He-
The certain knowledge that accept-
ances of a sound character v a i l find ready discount or purchase
at the counters of the Federal reserve banks and at rates as
low as two per cent, which is lower than has ever been enjoyed
^y any class of commercial paper in this country, has given a
feeling of assurance to our bankers in entering this new and unfamiliar f i e l d and has thus enabled them to gain a foothold in
-t and to make i t for a l l time an important and invaluable department of American banking.
pomeotic t r a d e c r o p - m o v i n g ,
and discount
policy.
Wnile this important extension of American banking enterprise into the foreign field was talcing place,
our banking sys-
tem, with the support of the Federal Reserve Banks, was assisting
in the fcecuperation and extension of our home trade and industry.
*he home trade i 3 , after a l l , the basis of the country's' indust r i a l activity and prosperity.
However large and important the
foreign trade may bulk in the popular imagination, however much
attention may be given to it in the financial columns, and however important it may be in fact,
it
is s t i l l the t r u t h ,
which
{xcioo;
OM3X I
N
" 0
65*
-12deserves to be emphasized, that ours is primarily a country of
inland trade ana industry.
Among the nations vhich have reached
a high degree of economic development, there is no other in which
inland trade bears so large a proportion to foreign trade.
cording to competent estimates,
Ac-
it is at least twenty-fold the
volume of our foreign trade and it is therefore the necessities
and the interests of our home production and consumption that
deserve especial consideration in any attempt to estimate how
well it is being served by the banking organization.
Are its
needs being supplied on reasonable terms and with the assurance
th
a t accommodation can always be had on satisfactory
To ask this question is to answer i t ,
security?
so universal is the knowl-
edge of the comfortable conditions which have obtained in the
monoy markets of the country and generally throughout the country since the Reserve banks were put into operation.
How completely the requirements of the
crop-moving
season have teen met is also a matter of wide experience,
n
ot of common knowledge.
Never before within the
if
recollection
this generation have the credit and currency needs
incident
to the gathering and the movement of the crops been met so easily
and so smoothly and so q u i e t l y .
The operation of the Gold Set-
tlement Fund which has been established to facilitate the settle-
6^8
-lament of exchanges among the Reserve tanks and to reduce to the
lowest point the shipment of currency from one part of the country to another.,
io in large measure to be credited v.dth the
happy r e s u l t which has been a t t a i n e d .
Tho autumnal pressure on
leading money markets and the consequent tightening of money
rates has come to be regarded by many as something that was inevitable in a country
subject td such large periodic
ments of cash for the movement of its staple crops.
requireTho last
crop-moving season, the first which has had the benefit of the
machinery of the Federal Reserve banking system, passed without
any untoward incident and without any indication of
or strain in the great money centers.
of the past year may be taken,
Indeed,
as I believe
perturbation
if the
experience
it may., as prophetic
of the great change wrought in our banking'mechanism by the Federal Reserve Act, tho disturbances associated i n the past with th<
autumn requirements may bo regarded as an e a s i l y manageable
i n our credit and banking s i t u a t i o n .
This,
in i t s e l f ,
facto:
is a tri-
umph which deserves to be s i g n a l i s e d in estimating the workings
of our now banking system.
With
rates ruling as high a s six per cent for commer-
cial paper when the Federal Reserve Banks were opened in the
autumn ox 19lU,
and vhen the f i n a n c i a l disorders
late
.incident to the
fAuOOW
AciOO |
OM3X
v OM3X I
658
-illEuropean war s t i l l presented a troublesome situation, and with
some variation of rates between different districts, the Reserve
banks, during the year 1915> greatly reduced the general
level
of discount rates and maintained them at a Remarkably steady
level.
The opening quarter of the year 1916 saw rates of from
two to four per cent on bankers' acceptances, the rate in actual
Practice, however, running very close to the lower limit-
Trade
acceptances at rates of from three to three-and-a-half per cent,
rates on short-term paper up to ninety aay3 at rates of from four
to four-and-a-half per cent, were the noteworthy features in the
discount rate situation.
The fact that rates as low as three and
three-and-a-half per cent were established on commodity paper,(that
i s , notes and bills secured by readily marketable staples), and the
further fact that the Reserve banks stood ready to take and have
freely taken agricultural paper at rates of four-and-a-half to
six per cent, shows that the banking accommodation provided by
the new system is not restricted to any class of borrowers but is
available to all classes where the security is of the type approved for Reserve bank operations.
-These various rates are lower than have ever been enjoyed for like classes of paper in any considerable section of
the country.
What i3 perhaps more important from the point of
0
658
-15view of the geographical distribution of the f a c i l i t i e s of the
new system, there has been a marked approach to uniformity of
rates among the several Reserve banking d i s t r i c t s ,
proach than has heretofore been e xperienced.
a nearer ap-
Whether i t w i l l
be practicable for a long time to come to maintain identical
rates throughout the twelve Federal reserve districts has been
questioned.
Such an outcome may not be likely as long as there
are narked differences
in point of economic maturity in the
different sections of the country, nor is the successful operation of the Federal reserve system predicated upon the assumption that discount rates must be uniform in a l l the reserve
districtsr
I0ne of the important features in 'jvhich the region-
a l system differs from the plan of the National Monetary Commission for a central bank with branches is that it does not require uniformity of discount rates but allows these rates to be
adjusted to the conditions of demand and supply in the respective d i s t r i c t s .
These conditions are admittedly so divergent
that any attempt to ignore them altogether in the determines
tion of Reserve bank rates might well be regarded as undue interference with the necessary operation of natural forces and
would sooner or later result i n embarrassment.
As long as the
different sections of t h i s vast country of ours are in differ-
658
-16-'
ent at ages of economic development with respect to the need
for, and the accumulation of.t capital,, it
is to bo expected
that there w i l l be differences in the rate of interest and also
therefore,
of discount rates.
But the disparity which long ob-
tained between the rates in some of the younger and less highly
developed sections and the cider centers, was undoubtedly in
large measure due to the peculiar banking policies and practices which had grown up under our old banking system, and which
wore, to a certain extent,
fostered by the law.
But whatever
the causes, the result was an a r t i f i c i a l disturbance of the
natural distribution of the oountry*s supply of credit
facili-
ties and a condition which threatened, if l e f t to i t s e l f ,
to
develop into an a r t i f i c i a l and unwholesome interference with
the free flow of the nation's
credits. To the extent that such
was the case, differences of commercial rates were without
solid
justification in economic lav and to that extent at
least we may expect that these differences w i l l be mitigated,
r
«
if not altogether eliminated, under the operation of the forces
sot in action by the Reserve Act for diffusion of credit
facili-
ties and for local control of credit conditions by regional
banks.
The rates which have been maintained" by the Reserve
—17-
658
Banks throughout the past year or more are probably not to' be
regarded as normal,
except in a temporary sense- The conditions
of the past year and a half have admittedly been extraordinary
and have worked toward easy conditions
the country.
in the credit markets of
When we have digested the iirmense volume of poten-
t i a l credit sot free by the new banking refonn and are no longer
subject to the depressing influence on rates exercised by the
great influx of gold which we have had, it is certain that rates
w i l l advance.
How soon the demand w i l l catch up with the supply
can only bo conjectured;
so too,
it is a matter of conjecture
what the normal rate of discount w i l l be when the demand and
supply of loanable funds are more nearly in equilibrium. Much
w i l l depend upon what is one of the most d i f f i c u l t of the war's
effects to forecast; namely, the effect of the interruption and
suspension of a large part of the customary commerce and industry of the European world and the destruction of an untold
amount of industrial capital, upon the permanent interest
In
the long run the interest rate on fixed investments
bound to influence short tern money rates.
rate.
is
In the long run,
too, there w i l l be a tendency for both investment rates and
commercial ra.tes in the leading financial centers of the world
to move toward a common level.
The course of the money market
t
653
•18
in this country i s ,
therefore, bound to be in very
considerable
degree influenced by the course of the leading money markets of
Europe.
Speaking for myself, let me say that I am under n'o illusion with respect to the function of the Reserve Banks in our
credit system, nor any with respect to the Federal Reserve Board's
position and power as the ultimate authority in the determination
of discount rates.
The Federal Reserve Act has invested the
Board with extensive powers,
in the fixing of discount rates but
it has also charged the Board with the
responsibility of seeing
to it that rates are so fixed as " to accommodate commerce and
business",
thus indicating that the fixing of discount rates is
an exorcise of economic and business
choice.
judgment, not an arbitrary
No body of men in my opinion would be competent to shape
the policies or guide the destinies of our new banking system,
who did not realize that the determination of discount rates at
their proper levels was more a matter of the wise
application
*
f
of economic law than of hasty or careless experimentation with
statute law; a question of the conditions affecting the demand
and supply of, loanable funds, present ?jid prospective,
as re-
flected in the market for short term commercial loans. The Reserve Banks w i l l ,
T
therefore, show wisdom in recommending,
1
r
and the
Federal Reserve Board wil?' showN wisdom in sanctioning only such
rates as correctly interpret the trend of business and credit
conditions and needs, so as,
date commerce and business".
in a genuine sense,
" to accoirmo-
For the Federal Reserve System
is not above or beyond economic law.
There is a magic in the Federal Reserve System but
it is no venture in financial alchemy.
It cannot make something
out of nothing, nor for any length of time, and except at the
cost of serious injury to the movement of the country's
industry,
maintain rates that are out of line with the natural economic
trend.
It would be poor policy,
at any time, to favor present
business at the expense of calculable future needs or requirements, nor should accommodation be withheld from present business because of undue solicitude or fear for possible
requirements. Such rates would not "accommodate".
case they would be too low,
future
In the one
in the other too high; but the error
committed and its mischievous effects would usually not become
manifest until the results were well beyond control.
The Federal Reserve Banks as a whole might have
maintained rates at a very much lower .level than has been in
effect during the past.year or more, but it is hard for mo
)
(
658
-20-
to sde whai good purpose would have "been served by such
abnormally low rates.
As
would have probably been,
I view it, the
chief
results
f i r s t , to have given an unhealth-
ful stimulation to business enterprise of doubtful validity,
possibly going so far as to work a dangerous inflation of
credit and the launching of undertakings that would later
on have been caught in the grip of rising rates;
and,
second, to have narrowed the margin of banking profit,
mors especially in sections of the country which are for
tho first time experiencing the levelling influence on
rates of a fluid credit system.
I need hardly point out that lower rates would
have borne hard on those of you who s t i l l follow the costly
practice of paying inordinately high rates of interest on
depositors 1
accounts.
It is a familiar fact that in many
parts of the country, banking competition has raised the
rate of interost paid on savings accounts to a point where
industrial development is retarded and bankers 1
threatened.
profits
It is well to encourage thrift by suitable
inducements, but the matter is overdone when the inducement in the shape of interest goes beyond the rate war-
-22w
-21-
<
ranted by "Industrial conditions; and thereby'diminishes
the
incentive to individual investment and enterprise. And this
leads me to remark in passing that I believe that there must
bo a readjustment in the interest paid to depositors to conform to the reductions in the rates of interest and discount
which will result under the moderating influence of the new
banking conditions.
3.
Absorption of redundant gold and checking: oX
Inflationary tendencies.
I am afraid that the great influence exerted by
the Federal Reserve Banks in steadying the movement ahd level
of rates is not generally appreciated at its full value and
significance.
The wise policy of conservatism and self-
restraint which has been pursued by the Reserve Banks as a
whole has given to the movement of industrial expansion
which has been under way for the past year, taking the
country by and large, a quality of health and solidity
that it would almost certainly not otherwise have possessed.
In this, the first substantial trial of the Federal Reserve
System's capacity for leadership,
questionable.
its success has been un-
It has, 9o far as its situation permitted,
created an atmosphere conducive to healthy expansion, and
V
(
.
_ .1
f
.
658
-22-
has used such influences as it could command to temper the
s p i r i t of reckless adventure and prevent it from bocoming
a menace to the country's welfare. The result has been that
the forward movement in industry which every part of the country has been experiencing in greater or less degree, has been
one of the most substantial that the country has ever known.
How easily it might have been otherwise can be conjectured
by those who have not forgotten how often incipient industrial prosperity has been turned into misadventure and
col-
lapse in the olden days, because of the lack of the guiding and steadying influence of such authoritative and competent leadership as the country now enjoys.
You will recall how frequontly and confidently, up
to the very last moment preceding the passage of the Federal
Reserve Act, the prophecy was made that the new banking system
about ,
would bring./inflat'ion, especially inflation of currency.
One
of the primary purposes of the Federal Reserve Act was to
provide a method of elastic note issue.
It is,
of course,
obvious that there can be no elasticity of circulation without the possibility of expansion which may, if the management of note issues is in incompetent hands, lead to inflation.
658
-23Discretion must lodgo somowhoro, ;jid if it bo abused,bud consequences w i l l result.
How carefully the new system has func-
tioned in this respect, and how prudently it has used its
issuing power to diminish,
rather than aggravate any tend-
ency toward inflation of credit is one of the most gratifying evidences of the wisdom of our new banking law and
the ability of its managers.
This deserves to be made clear,
for there has been much misconception of the
policy which
has been pursued by the banks with respect to note
issues.
The statement is sometimes made by persons who
have not taken tho trouble to inform themselves,
that there
has been a great expansion of tho Federal reserve note circulation at a time and under conditions when there was no
need of additional currency.
What are the facts ?
If you look at the Daily Statement of the Treasury
for May 13, 1916,
you w i l l find that $ 1 8 7 , 1 6 6 , 0 0 0 of Federal
reserve notes have beon issued by the Federal Reserve Agents
or tho Government to the Federal Reserve Banks. The Federal
roservo notes are of course
obligations of tho Government
as well as of the issuing banks and are issued by the Government to tho banks and by them to the public. Before we can
determine what,
Federal
if any,
reserve
influence has been exerted by the
notes
issued
by
the
658
-24Government in augmenting the money supply of the
country,
we need, of course, to know on what basis the banks have
issued the notes to the public,
and also what portion of
the notes that have been issued by the Government to the
banks are hold in the bank's
On may 13, 1916,
vaults.
it appears that $ 2 7 , 2 1 8 , 0 0 0 of
Federal reserve notes issued to the banks had not yet been
issued to the public,
and of the $ 1 5 9 , 9 4 8 , 0 0 0
outstanding
and issued to the public, all but $ 9 , 5 6 7 , 0 0 0 had been issued
i n exchange ibr gold.
That is to say, that except for
$ 9 , 5 6 7 , 0 0 0 of Federal reserve notes outstanding against which
the Government holds commercial paper for an equal amount
and the banks hold a gold reserve of 4 0 $ ,
there was for
every dollar of Federal reserve notes issued to the public
by the Reserve Banks a dollar of gold taken from the public
by the banks and deposited with the Federal Reserve Agents,
representing the Government.
In b r i e f ,
to this extent the
Federal reserve note is tantamount to a gold certificate
or warehouse receipt for gold.
658
- 25 -
A dollar of reserve money is, by usual computation,
estimated to be capable of supporting a volume of credit in the
customary form of deposit liabilities,
itself.
When, therefore,
of four or five times
it is recalled that the Federal re-
serve note is not legal tender and cannot therefore be counted
in the reserves of the national banks, you can readily see how
the policy and rathod which the Federal Reserve Banks have pursued in the management Of their Federal reserve issues, do far
from inflating the bankable funds of the country,, has actually
reduced them by a large amount*
amount of
in other words, of the vast
of gold which the country received in
settlement of the international balance during the year 1915/
and whichj if allowed to accumulate in the reserves of the banks
would have threatened a serious unsettlenent and disturbance
in our credit situation, 36$ (or $150,381,000) has been drained
off and stored up in the keeping of the Federal Reserve Agenta
until such time as changed conditions and the interests of com~
merce and industry may require its use.
The note-issuing policy
c
pursued by the banks has thus had the twofold effect of actually
diminishing the tendency to inflation through substituting the
note in place of gold and, at the same time, has provided a definite reservoir of gold which can be tapped without producing any
653
- 26 -
shock or anxiety when the inevitable demand begins for the return to Europe of some considerable part,
if not the whole > of
the gold which necessity has obliged Europe to part with to u s .
So far from being a source or cause of i n f l a t i o n , the very opposite is the case,
and the country owes much to the salutary action
of the Federal reserve issues in mitigating the effects of the
gold influx.
Whether we could or how we would have dealt with the
problem of the increasing gold supply had we not fortunately had
the agency of the Federal Reserve Banks, may well be questioned;
but it is worthy of remark and careful consideration that although
a condition so extraordinary as this was probably never contemplated by the framers of the Federal Reserve Act, and therefore
no s p e c i a l provision made for i t , nevertheless, so well conceived
was the general framework and machinery of the system that it was
found that it could be turned to useful account in rjieeting the
situation created by the presence of the redundant gold supplies.
U.
Commercial confidence.
I have reviewed, perhaps at what has seemed to you
tedious length, three d i s t i n c t ,
important and d i f f i c u l t kinds of
service which the Federal reserve organization ihas rendered
in
653
- 27 -
the first year and a half of its existence - a period characteri z e d in its general aspects "by much uncertainty and anxiety - in
order to show how the new banking system is standing the t e s t .
It
has met every requirement in the financing of the largest export
trade the country has ever enjoyed;
it has equalized and steadied
discount rates at a low level throughout every district of the
country and in this connection it has withstood the temptation to
u t i l i z e its vast resources and power to depress discount rates to
the point where both a dissipation of
ful stimulus would result;
its resources and an unhealth-
and, thirdly,
it has dons much to check
the inflationary tendency threatened by the huge influx of gold.
X come now to a fourth matter which is in some respects
equal in importance to any of the others, if not of greater importance, because it has underlain each one of them and has made possible the definite and signal results which have been achievedI refer to the atmosphere of confidence that has been induced and
maintained from the very day and even
before the day of the open-
ing of the Federal Reserve Banks, and in every section cf
try.
It i s ,
the coun-
of course, hard, not to say impossible, to estimate
the value of any element of business health and activity so intangible as confidence, and yet it is
the modern business system.
of the very essence and l i f e of
Business is largely a state of mind.
Business flourishes in tho atmosphere of hope and the sunshine of cheer;
it is chilled and choked by the poisonous
vapors of fear and anxiety and is paralysed by the atmosphere of despair.
The method of the Federal Reserve Sys-
tem, I trust you understand by this time, is the method of
hope and of encouragement.
It is this quality which dis-
tinguishes the Federal roserve legislation from any other important piece of legislation ever enacted by our Government
touching the fortunes of business.
It is this quality which
entitles it to bo regarded in a very genuine and critical
sense as a product of constructive statesmanship.
It is
this quality which makes the advent of the Federal Reserve
System mark an epoch in the business life of America and a
atep of incalculable length in the development of tho.new
relations which the statesmanship of the future will 3eek
to cultivate between the agencies of Government and the
agencies of business.
That it has thus far succeeded in this vital
function, tho past year and a half bears eloquent te3tii
mony.
A more striking contrast of conditions than those
which confronted the country at tho inception of the Federal
Reserve System, when business and financial chaos was im-
658
23 ..
pending a3 a result of the outbreak of the European war,
and those which have obtained since the banks were set in
operation,
can not be found.
Our international relations
during the year 1915 were marked by several critical episodes
any one of which under ordinary conditions would have thrown
business into convulsion.
Public opinion and feeling has on
several occasions been in a state of extreme tension.
IThen
we recall the Luoitania incident, the Arabic, Ancona, and Sussex,to say nothing of the Mexican tangle, we can readily understand why war at times seemecitc many imminent, and to some a
certainty, and yet throughout it a l l the business pulse haa
boon strong and steady and firm.
There has been l i t t l e of a
dramatic or sensational character to record in our recent
business annals.
There have been moments when that sen-
sitive barometer of business feeling, the stock market, has
registered some nervousness and hesitation,
but nothing for
a moment comparable with the disturbance and shock following
threatened ruptures in our foreign relations on former occasions, so unqualified has been the confidence that the
business community as a whole, has felt in the new banking
system*
"When President Cleveland, twenty years ago, sent
to Congress his message defining the position of this country
658
- 30 -
with respect to Great B r i t a i n ' s attitude on the Venezuela
"boundary dispute, the leading markets of the country were
threatened with collapse.
When President Wilson delivered
his recent address to Congress with respect to the position
of our country on Germany's methods of submarine warfare,
though the situation was vastly more delicate and c r i t i c a l ,
our leading markets showed l i t t l e weakness and less anxiety,
and why?
Because there was confidence that, come what might,
a
we were possessed of/banking organization whose resources and
management gave ample guaranties of financial safety.
The
gratifying evidence thus given of the feeling of security which
our new banking system has inspired in the business community,
is one of its greatest achievements and most valuable assets 9
For it may be laid down as axiomatic in modern finance that a
financial and banking system, to meet the ultimate test, must
not only be strong, but must also be generally believed
strong - and adequate to any need.
to be
That d i f f i c u l t test has
been successfully met.
Indeed, when we reflect upon the conditions of the
past year, the establishment of the Federal Reservo System
almost coincidently with the war seems almost to have been
providential.
Without the new system we should certainly
V
658
- 31 have "been floundering like a ship at sea without rudder or
compass to guide i t ; with it we have sailed like a wellballasted ship, steadily and securely.
And a l l this has
been accomplished with a very moderate, not to say insignif—
icent, amount of a c t i v i t y , as business activity is commonly
measured in those days, on the part of the Federal Reserve
Banks, thus showing that it is not the amount of business done
which measures the usefulness and effectiveness of the Reserve
Banks, but the character and the extent of the influence exported by them, whatever the ways in which that influence may
be exerted.
With money rates unprecedentedly low, as they
have been during the past year and with the banks of the country
pretty generally in liberal supply with respect to loanable funds,
it is hard to see what good purpose could have been served by an
attempt on the part of the Reserve Banks to force the use of their
funds "by demoralizing reductions of rates, even if they could
have succeeded, b y
this means, in diverting business to them-
selvesI do not doubt that as the natural expansion of business grows up to the supply of credit f a c i l i t i e s with which
wo are now so richly blessed, the loaning power of the Reserve
Banks w i l l be drawn upon in increasing degree, and that most,
if not a l l ,
of the Roserve Banks w i l l have abundant
opportunity
to engage in activity which w i l l be at once useful to the community and profitable to themselves.
But until this point
is reached, i t would be shortsighted to complain because the
Reserve Banks, as a whole, have not been dividend-earning institutions.
Activity is the law of being of any ordinary busi-
ness concern, but the Reserve Banks are not ordinary business
concerns.
They have a very aacrod place and function in the
country's credit system.
Profit is not their object, and not,
therefore, the test of their fitnoss.
. Not the amount of bus-
iness done, but the amount of good done, is the proper standard
by which to judge them.
But when this is said or admitted,
it
should also be added by way of a warning word to those who would
wish to 3ee the operations of the Federal Reserve Eanks circucumscribed within narrow limits, simply in order to avoid the
effect of their competition with powerful member banks, that
the limited amount of commercial operations in which the majority of the Reserve Banks have thus far engaged,
is not for
a moment to be taken as indicating the range of their normal
activity.
There w i l l ,
in time, be much business that those
[banks w i l l have to assist in order effectively to perform their
f. .
V '
i
653
- 33 -
functions as regulating and governing banks, and while this
business should not be undertaken from motives of p r o f i t , we
may confidently expect that i t m i l ,
in the ordinary course,
yield returns that w i l l easily pay the expenses of maintaining the Reserve Banks and meet their dividend requirements, and
thus satisfy the ordinary test of business success along with
the other and more d i f f i c u l t tests;
the fact that higher
for let us not o\*erlook
and more difficult tests than any which
the system has thus far had to meet may await it in the uncertain and troubled future toward which the whole commercial
world seems moving, as a result of the t e r r i f i c
disorganization
of industry, commerce, and finance which the gigantic
now in progress in Europe w i l l
struggle
entail.
Econimic Readjustment After the War:
It has been predicted on the one hand, that the loading countries of Europe w i l l find themselves industrially and
financially so weakened as a result of the war that they w i l l be
long in repairing the damage sustained by their industrial organisation, and w i l l be,
in consequence, a factor of diminished
importance in the sphere of international commerce.
The m©re
destruction of large percentages of their working populations
658
-
and the disability through injuries and disease,
of other large
percentages, to aay nothing of the destruction of vast amounts
of physical capital,
it is suggested w i l l ' r e s u l t
in such shrink-
age of their productive power as to keep them busy at home for
a long time in repairing waste and loss.
The crushing burdens
of taxation that w i l l lie heavily upon the commerce and industry
of Europe are also pointed to as
dustrial recovery.
factors, that w i l l rstard in-
Germany, which before the war occupied a
nost formidable position in export trade and in ocean carrying,
as a result of British domination of the sea, has boen practically
shut out from her customary over-seas trade.
To what extent and
how soon, she w i l l recover her former position is regarded as
highly'problematical, and weakened competition in our markets
and some of the new markets in which we have recently been acquiring a foothold, i s ,
in consequence expected.
Others, however, predict that the economic recovery
of Europe w i l l bo rapid, and that competition, both commercial
and industrial,
among the leading nations, more intense than
has ever before been experienced,
the close of the war.
i3 to be expected soon after
The animosities,
r i v a l r i e s , and am-
bitions for commercial and industrial supremacy, which had
658
- 35 -
much tc dc with tho mating of the war, w i l l ,
it is said,
con-
tinue and give to the period after the war much of the unsettled and unsettling character of war times.
Those who
take this view predict that an era of protracted and "bitter
commercial warfare w i l l follow-the termination of the armed
conflict, and that the differences and scores which were not
settled on the field of "battle w i l l be fought to a finish on
the field of commerce, and that neutral nations w i l l inevi tably be drawn into the struggle.
Without undertaking to pass judgment upon predictions
of this character,
I think it nevertheless well that we should
be alive to the contingencies which may b© ahead, and I do not
hesitate to express my belief
that Europe w i l l give tc the
world an impressive exhibition of the recuperative powers of
modern industry even after such a costly and exhausting war
as has been in progress.
Stupendous as are the examples
that tho past year and a half have given us of the destructive
agencies of civilization when turned to war,
I believe wo shall
got equally impressive examples at its close,
of the construc-
tive forces of modem civilisation when its energies and aspirat i ons are turned to the healing work of peace.
V7ar destroys,
i XERO
" COPY
n
658
-
36
"but that is not all that it does.
-
Fortunately for a world in
which war is long likely to remain a persistent and recurring
fact, war "brings some industrial compensations, though the offset to the losses and injuries
be far from complete.
War,
especially war of the kind which is going on in Europe and
touching to passionate intensity the vital impulses of great
communities of men, stiffens and steels their fibre and makes
them more capable to bear the hard and heavy burden of modern
industry, and. therefore w i l l make them more formidable competitors,
in time , of nationa which have not had to face the dis-
cipline of war.
No one can begin to approximate how much the
industrial efficiency of the average man and woman in Europe
w i l l bo raised as a result of the experiences and lessons which
war has taught tham in unity of purpose and action,
in organ-
ization and e f f i c i e n c y ,
in oconcmy and t h r i f t ,
in devotion to duty.
These things w i l l t e l l , and I believe
t e l l mightily,
in industry, and
in the productive and competitive strength of
the larger European nations after the war.
Necessity has
already worked some wonderful transformations
in the
industrial
systems of the countries at war, and it is not unreasonable to
m
*
t
expect that the nations which emerge from the trenches w i l l , man
for man and woman for woman, (for woman is clearly to play a role
6^8
- 37 -
in tho industrial economy of Europe in the future far more important than she has in the past) come more near to realizing
their f u l l productive capacity than ever "before.
This war has also taught lessons to the warring nations which w i l l not soon be forgotten or wasted, as to the
momentous effect which an e f f i c i e n t credit organization can exert
in maintaining a country's industry in a state of health and
activity and just as the European credit system has shown a capacity to finance the costs of war v.hich has far outrun the wildest
expectation,
so it may be expected that it w i l l show a new and
enormous power to meet the requirements of industrial recupera^tion.
Let us not, therefore, make the mistake of supposing
that it w i l l be an industrially feeble and unambitious Europe
which w i l l emerge from the war.
The history of modern commerce affords no parallel
to the situation which exists or may e x i s t , and wo can therefore learn l i t t l e from history as to what we may expect.
nearest approach is the long period of economic
following the close of the Napoleonic wars,
The
disturbance
It took fully
fifteen years for the world of commerce and industry to work
out the needed readjustments and recover a normal equilibrium,
and the process was embittered and embarrassed by policies of
{
658
38
commercial reprisal and t a r i f f wars, similar to those which
are
now being planned by the contending groups in the European
war.
Neutrality was no protection then, nor w i l l it be now.
Our commerce and industry pursued a troubled course from 1815
to I83O, marked by a succession of alternating periods of fitful and feverish activity and industrial breakdowns.
The
process of readjustment which had to be gone through in order
to determine what the relative positions of the several nations
should be in the new commercial economy was a long and costly one
for each and a l l .
Uncertainty was everywhere.
To recognize
the p o s s i b i l i t y , not to say the probability of the recurrence
of something similar would seer^ to be the part of prudence forus, and the first step in intelligent preparation for i t .
The
one thing which is certain in forecasting the future is the
uncertainty of the conditions with which we shall be surrounded.
Let me add however,
in order to relieve unnecessary
suspense, that I do not look for an immediate reaction in our
industrial situation at large as a result of the close of the
war.
But I do expect that some of the industries'which have
been stimulated into frenzied activity by the forced draught
of evanescent war orders, may have their troubles.
Also I
6^8
35
think that there is much danger that their ttoubles,
unless'
localized and controlled, may breed trouble, uncertainty,
anxiety for others.
as of prosperity.
and
There is a contagion of trouble as well
We know this from aad experience.
much, at least, may safely be said;
This
that our industry and com-
merce are to travel uncertain and uncharted ways in the years
which are ahead, and uncertainty,
X need not t e l l you, is the
great bane and foe of modem business.
To eliminate it where
we can, or to minimize it where we can not completely control
i t , is our clear duty.
We shall not, therefore, if ive are
wise, neglect to strengthen our defenses so as to make them
equal to any contingency with which we may be confrontedthis leads me, in conclusion,
And
to say some frank words to the
State banks, whose cooperation should be forthcoming in order
to widen the base of our banking structure, to give the country
the fullest sense of safety and security-
5*
How are State banks meeting their test*
Speaking to £L.convention made up largely of State
bankers I should be remiss in my duty if
I did not avail myself
of this opportunity to speak plainly to you.
'You know that
658
- Uo -
the Federal Reserve Act was purposely planned upon a "broad
and generous scale in order that every bank in the country,
whether State or National,
doing a commercial banking business
in safe and legitimate ways, might secure for itself and its
customers the advantages and protection of the Federal Reserve
and at the same time contribute its quota of strength to i t .
The State banks surpass in number the National banks and represent a substantial part of the commercial banking power of the
nation.
To what extent the proportion has declined since the
establishment of the Federal Reserve System can not bo approximated with accuracy but it i3 a fact that the National banking
system has since the establishment of the Federal Reserve System shown an accelerated rate of growth and a greater capacity
for growth than State banking during the same period, the increase in the deposits of the National banks having been estimated to be three or four times as great as those of the State
Banks since the inauguration of the new System.
TThat the
relative growth of member and non-member banks w i l l be in the
future,
I shall not undertake to prophesy but as lo£g as there
is a considerable portion of the banking power of the nation organized as State banks and which is eligible for membership in
the Federal Reserve System and'.has not joined, the system w i l l
not have attained its fullest strength and its widest f i e l d of
usefulness.
,
658
-41-
Why are you State banks not coning in to the new
system ?
The provisions of the law respecting State bank mem-
bers are as l i b e r a l as could well be desired, and the regulations which the Federal Reserve Bo„rd has laid down on this
subject are even more l i b e r a l .
Those of you who have read
the Act and the Regulations of the Board w i l l ,
find no reasonable ground of complaint.
I believe,
You w i l l find few
restrictions upon your customary banking methods.
The Board
has even gone so far as to provide a way by which any State
bank becoming a
member bank may withdraw from the system
in order that you need not be deterred by the feeling that
membership means an irrevocable choice.
The attitude of
the Federal Reserve Board has been founded in the conviction
that our now banking system should be as broad and as strong
and as capable, as the financial condition of the country w i l l
support and the limitations of the Reserve Act w i l l permit.
It is almost a year now 3ince this Board issued
its regulations
concerning the admission of State banks.
Thirty-four banks have joined.
The strong conviction which
the business community in every part of the land has formed
of the benefits of the new system require that it should be
known why the growth of State bank membership has been so slow.
658
-42-'
Are any of you holding back because of dissatisfaction with the
provisions of the Federal Reserve Act or with its
administration
The Federal Reserve Act and the Federal Reserve System are here
to stay.
They have won the sanction of public opinion and are
regarded as the essential bulwark of our financial safety*
As
to the administration of the Act and of the twelve Reserve Banks
l i t t l e but good has been hoard. But if the State banks are holding back because of dissatisfaction with the administration of
the law or the banks, they should make it known in order that
the defects may be remedied, and the country given the full
advantage of a banking system carried to the highest point of
strength and e f f i c i e n c y .
Coming to another reason,
I have sometimes hoard it
suggested that financial conditions have so changed that there
i3 no longer need of the kind of protection and security which
the Federal Reserve System was designed to provide.
»
It must
be admitted that the financial situation during the past year
has been so exceptionally easy that it might well have begotten in the minds of those who are not in the habit of looking beneath the surface of things,
s t r a i n and
the idea that
convulsion is a thing of the past.
financial
They are likely
658
-43to experience some surprises.
I have already given my roa-
son3 for oxpecting that the years which are ahead and which
w i l l reap the consequences of the financial
disorganization
and demoralization growing out of the great war, w i l l be years
of uncertainty and disturbance for us in corrmon with the re3t
of the world; years filled with rjixietyj and requiring for
the good management and the protection of our national
interests,
the guidance and support of the Federal Reserve System. Whatever other mistakes wo make, let us not deceive ourselves on
*
this point, and be lulled into a blinding passivity;
for when
trouble comos, as sooner or 1 .ter it w i l l and State banks in
overwhelming numbers run to cover under the shelter of the
Federal Reserve Banks, they may find some difficulty in getting in as quickly as they would l i k e .
There is also a feeling abroad in some parts
of tho country that in some mysterious way the Federal Reserve
System, with the membership of the National banks, has produced a situation in which tho oonoficont effects of the new
banking system, like the rains lof heaven which fallalike upon
the just and the unjust, w i l l be so inevitably and widely
diffused that non-member banks, no less than member banks,
w i l l reap the full advantages.
Lot me say very frankly that
I believe there is some truth in this - yes, much truth but not so much a3 is frequently assumed.
-44-
658
To the extent that the success and effectiveness...
of the new system w i l l depend upon the feeling of security
that it inspires - in other words, to the extent that the
success of the system depends upon what may be entitled
its
psychological reserve - it is no doubt true that all the
banks,
irrespective of their connection with the new system,
w i l l participate
in the result. But it may readily happen,
and it w i l l probably happen,
that from time to time - no
one can say in the face of the critical years that are ahead
of U3 how froquontly these times w i l l occur - the needs which
the community w i l l have of the Reserve Banks w i l l call for
more than psychological reserves and w i l l at times cut deeply
into their gold reserves,
and then w i l l it become
• clear
that the strength of the system is measured also by the cash
that it holds in hand. The State bank, therefore, which conducts a banking business that qualifies it for membership in
the system under the liberal conditions laid down by the Federal Reserve Board, and which sustains relations with the
business comrrunity of the kind that give rise to financial
d i f f i c u l t i e s and embarrassments of the sort which have called
forth the establishment of the Reserve Bank3 as a means of
protecting the community, are taking the responsibility
for
-45-
themselves and, what is of far more serious consequence,
the communities of customers which they serve,
for
of keeping
the new system from becoming in the fullest sense an American
system, equal to any demands that may be made upon i t .
You are the bankers of a community which is
servod mostly by State banks.
Your State h:.s extensive agri-
cultural, manufacturing and merchandising interests.
are precious to your people.
They
Their condition makes or mars
your prosperity and your condition may make or mar theirs.
I see no good reason why the people of Missouri,
or Mississippi,
or Arkansas,
should not enjoy in a l l circumstances the
same sense of security as is enjoyed by the farmer, tho manufacturer,
and the merchant in States or sections of the
country which are served preponderantly by National banks.
I believe the welfare and security of the Missouri
merchant,
Congress
or manufacturer was just as much in the mind of
kvhen
it enacted the Federal Reserve Act as that of
manufacturer, merchant,
ecticut.
farmer,
or farmer of Massachusetts or Conn-
Ho is entitled to all the good that can be reaped
from tho new banking system and he is entitled to know i t ,
if his existing banking connections do not secure him tho
fullest ana freest access to i t .
658
-46The Reserve Bank affords an ever ready means by which
good commercial paper can, at a momentTs notice, on presentation
at the counters of the Federal Reserve Bank, be turned into
either credit or currency.
No such thing as a currency famine
can overtake the customer of a bank that, by reason of its membership in the Federal Reserve System., has the right and ability
to go to that bank and get gold, credit or currency.
Non-member
banks may get it' as a matter of favor, but I believe that people
as thoy come to understand these matters more fully, will see
the difference between deeding with a bank that, as a matter of
right and of course, can go to a Federal Reserve Bank for as*sistance in the certain knowledge that it will be forthcoming,
and those banks which,
if they get such assistance at all/
w i l l get it indiroctly and as a matter of favor and of public
spirited generosity on the part of the member banks and of
the Reserve Banks *
In matters of such vital concern to its
industry and agriculture, no community can afford,
bo w i l l i n g ,
or w i l l
to pin its faith to bank3 which are on the out-
side of the Federal Reserve System.
Those of you who need a more personal and cogent
reason for becoming member banks w i l l soon find i t ,
I believe
V/
658
-47-
when tho plan which has been devised for the clearing and
collection of checks has been put into operation by the Federal Reserve Banks.
The Federal Reserve Bank of St.Louis
w i l l soon issue a circular giving complete
information
and I am confident that the plan w i l l have been in operation but a short time before many non-member banks w i l l
realize the nocessity of joining the Federal Reserve System
in order to participate in its new collection plan.
The plan i3 well conceived*
The Federal Reserve
Banks w i l l extend unsurpassed collection f a c i l i t i e s to such
of their members a3 choose to avail themselves of them,
but the system is optional*
No member bank w i l l be obliged
to clear through it3 Federal Reserve Bank.
The only element
of compulsion is that every bank, whether member or non*-member,
w i l l be obliged to pay without deduction checks drawn upon
i t ^nd presented at its counter for payment by tho Federal
Reserve Bank or its representative,
change or in lawful money.
either in acceptable ex-
The plan is reasonable: many
letters that are coming to the Federal Reserve Board from
those who have boon the victims of excessive exchange charges'
provo t h i s .
The plan is also practicable and is going to
)
(
658
^48-
bo offoctivo
1 this is proved by the objections that are
being urged against the plAn by those banks that arc now
taking tribute from the commerce and business of the country
in the shape of unreasonable exchange charges.
It has been
estimated that as soon ad the plan has been put into operation checks upon at least fifteen thousand b-*nks, National
banks, State banks,and trust companies, throughout the United
States can be handled at par through Federal Reserve Banks,
subject to a small service charge.
the rule.
Par collections w i l l be
State banks whose checks cannot be collected at
par w i l l be a small and rapidly diminishing minority and, as
they w i l l find it d i f f i c u l t to retain much good business when
checks drawn upon thorn are at a discount while checks drawn
upon the majority of banks can circulate at par, the day is
near at hand when checks upon practically all banks can bo
handled at par by Federal Reserve Banks.
If the reasons I have advanced for State bank membership in the Federal Reserve System are sound, as I believe
you w i l l ,
on sober reflection conclude they are, why,
then,
I repeat, are you State bankers hesitating and waiting ?
65*
-49I asked this question the other day of one of tho largest "bankers
in this district and his answer as /'most of them d o n H know. They
c a n ' t tell you.
trouble comes."
But you w i l l got them in quickly enough when
I have spoken to little effect if the logic of
my wordd does not say to you,
" D o n U wait
Hill
trouble comes, but
make the assurance of the new banking system for•yourselves and
those you serve,
doubly secure by coming in now, and doing your
part in giving to this country of ours a banking system worthy
of its nomo and worthy of its f u t u r e . "
to f a i l .
To fail in this vital test,
unbusinesslike,
is ungenerous;
is,
To falter i s ,
at this vital time,
is
therelorp, un-iimerican and
unpatriotic.
A. C. M*
5/19/16
therefore,
@FedFRASER