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AMENDING THE FEDERAL RESERVE ACT
SPEECH
OK
HON. CARTER
OF-
GLASS
V I R G I N I A
IN
THE
HOUSE OF REPRESENTATIVES
JUNE 14, 1917
(
,->.0
-'J
/JO';
WASHINGTON
GOVERNMENT PRINTING OFFICE
n oo—17003
1917
)
-r,.
S P E E C II
II 0
N
.
C A
R T E
11
G
L A S S .
The H o u s e h a d u n d e r c o n s i d e r a t i o n t l ^ c o i i f o n M H - o r o p o r t on t t e b i l l
( I I . I{. :S(i7.i) to a m e n d the act a p p r o v e d December J . ! , l l i l . i I t n o M an
t h e Federal reserve a c t . as a m e n d e d by I lie acts of A u g u s t 4, 1.(14,
A u g u s t 1">, 11)14, M a r c h ::, 1!»1">. a i u l S e p t e m b e r
1010.
Mr. GLASS. Mr. Speaker
The SL'EAKER. The gentleman from Virginin [Mr. OLASSJ
is recognized for 20 minutes.
Mr. GORDON. May I interrupt the gentleman before he
starts? [Laughter.]
, . ,,
Mr GLASS. 1 will be pleased to be interrupted by the gentleman before I start, because after I start I shaR ask not to be
interrupted at all.
.
„
Mr GORDON. I wish to direct the attention of the gentleman to the remarks of the gentleman from Pennsylvania [Mr.
MCFADDKN]
The whole burden of his plea was in behalf of
these small country banks that are not in the Federal Reserve
System To what extent has this Congress power, in amending
the Federal reserve law. to affect at till legally the banks not in
the Federal Reserve System?
_
.
Mr. GLASS. The gentleman knows possibly better than l tnat
the Congress has not one particle of power to regulate the banks
that are not in the Federal Reserve System. Nonmember banks,
which are State banks, are not directly affected by this legislation. They are concerned in this legislation only by reason of
the competition incident to a collection system which the Federal
Reserve Board has established. That is to say, if member banks
refrain from making charges for paying and collecting checks,
and State banks persist in exacting this toll, business men will
prefer to keep their accounts with the banks that do not charge;
hence nonmember banks would like to have member banks
authorized by law to make these charges.
.Air. S W I T Z E R . Will the gentleman yield for just one question?
Mr. GLASS. I can not yield any more.
Mr S W I T Z E R . I would like to ask a question. Does your
amendment permit, or does it allow, the Federal Reserve Board
to give authority to a bank to make a charge for this collection?
Mr. GLASS. To make a " reasonable " charge; yes.
Mr. SWITZEH. With the argument made here that there
should not be such a charge made, why do you recognize it?
Mr GLASS. Because the managers on the part of the House
were instructed to do it. That is till the reason for i t ; but for
that instruction the conferees would have authorized no charge
at all.
, ,
Mr. S W I T Z E R . You do not intend to allow anybody to assert
that privilege?
4 / , .
2
J
i.
<h
UJ
o
[ (
]
1100—17093
3
Mr. GLASS. I hope not and believe not. That is precisely
why we propose these modifications of the so-called Ilardwick
amendment. We do not want the hanks to determine whether
the charge is " reasonable," it" made at all, or what the amount
shall be when made. We want the Federal Reserve Hoard to
regulate these questions strictly—to say in what circumstances
it is reasonable to charge and what amount shall be charged.
Mr. Speaker, as to the ethics involved in this legislative procedure, especially with reference to the appointment of the
managers on the part of ihe House, I want to say that the
chairman of the Committee on Banking and Currency followed
the usual procedure. When the conference was asked lie conferred with the senior Republican member of the House committee, the gentleman from California [Mr. HAYES]. That
gentleman was ill at his homo in Washington, and notified me
over the 'phone that lie would be unable to act and readily
acquiesced in a suggestion that I designate Mr. PLATT, of New
York, as a Republican manager on the part of the House. As
a matter of fact, I momentarily assumed that Mr. PI.ATT was
the next ranking member of the Banking and Currency Commit tee.
Mr. MONDELL. Will the gentleman yield?
Mr. GLASS. I will not.
I say I momentarily supposed that Mr. PI.ATT, of New York,
was the next ranking member, and I handed his name to the
Speaker as one of the conferees. This I explained in detail
to the gentleman from Mississippi [Mr. IIAIUUSON] some days
ago and wont in person and apologized to my colleague, the
gentleman from Iowa [Mr. WOODS], who accepted the explanation. With that statement I will leave it to the House to
determine just exactly how fair and precisely how frank the
gentleman from Mississippi [Mr. HARRISON] was in his statement of the Incident to the House to-day. [Applause.]
I prefer not to believe, and yet I candidly suspect, that my colleague from Pennsylvania [Mr. MCFADDKN] was fully aware of
the fact T have just stated, and the House may thus judge of the
frankness of his criticism also. I may add that had the senior
Republican member of the Committee on Banking and Currency
[Mr. ILVYES] been In good health lie would have been one of
the conferees and would have stood unyieldingly with the chairman of the committee in resisting the attempt, by a Senate
" rider," to impose this tax on the commerce of the country.
[Applause.] Therefore, the effort to make it seem that some advantage was sought or obtained in the designation of the House
managers Is manifestly a quibble, designed to shift the issue
from one of fact to one of resentment.
As to the talk about " the lobby that has beset this House " and
the " round robins" that have disturbed the membership, the
only lobby we have had was the committee of 25 bankers which
settled down in Washington soon after Congress convened, with
headquarters at the Willard Hotel. This bankers' committee,
dining and wining the proponents of this proposition, sought to
influence the a*£ion of the House by as thoroughly organized a
propaganda as was evel- known in legislative annals. [Applause.] This committee was in ceaseless communication with
the banks of the country and had Congress flooded with letters
and telegrams.
1100—17(393
m-
9
4
The only word of hearing upon this proposition' to delegate
the power of taxation to banks by a Federal statute was secured by a transparent trick. Letter after letter and wire after
wire came to the chairman of the Committee on Banking and
Currency from the business men of the United States asking
to be heard against this proposition. My invariable answer was
that the proposition was not germane to the amendments that
were being considered and that, therefore, there would be no
committee hearings on the bill (H. It. 3G7.'?). Hut under the
pretense of wanting to be heard upon the major provisions of
IL U. oG7:5, a subcommittee of this committee of 25 bankers was
presented to the Committee on Banking and Currency. These
bankers spent about two minutes talking about the real provisions of this bill and nearly two hours discussing this check
paying and collection charge " r i d e r " which had been proposed
by their committee. Thus, the only hearing had on the subject
was obtained in the way I have indicated by this famous "committee of 25." without opportunity to the business men of the
United States to be heard in rebuttal.
There has been no lobby so far as the opponents of this measure are concerned. Naturally the whole business community of
the United States, except a small group of bankers, is opposed
to this proposition to authorize certain banks, by law, to tax
commerce. It required no lobby; it required only a sense of
justice and a comprehension of the injustice that was sought to
be perpetrated by this Ilardwick amendment.
It is pretended that only the mail-order houses and jobbers
oppose the scheme. 1 hold in my hand a resolution adopted by
the Farmers' Educational and Cooperative Union of America,
which says:
We the National Convention of the Farmers' Educational and Cooperative Union of America, assembled In Paiatka, Fla., earnestly and
strongly protest against any change in the Federal reserve act with
reference to charges on collections on checks and drafts.
I have here also the resolution of the National Orange of the
United States, representing more than one million farmers,
which says:
Whereas it has come to the knowledge of the National Grange that a
concerted effort will he made this winter to have Congress amend the
Federal reserve act so as to restore to certain banks throughout the
country the privilege of indiscriminate taxation taken from them by
the system of check collection established by the Federal Keserve Board
in pursuance of the act of December 23, 11)13.
Therefore lie it resolved bv the National Orange that we protest
against the proposed change of the law and that Congress be, and hereby
Is earnestly petitioned by this body in behalf of the farmers of the
United States to disregard Ibis organized attempt to so alter the
Fed era I reserve act as to enable certain banks to exact unjust tolls
from the commerce and industry of the country, DO per cent of which
business is transacted by drafts and checks rather than by the use of
currency.
I have here a dispatch, dated at Peach Bottom, l'u.. May 19,
from J. A. McSparran, one of the most intelligent and patriotic
farmers in the United States, chairman of the legislative committee of the National Grange, in which he says:
BANKING
AND
Ccnr.BNcr
COMMITTER,
llousc of Representatives,
Washington,
D. C.
In the name of the National Grange we desire to protest against the
adoption of the Ilardwick amendment to the reserve act. which gives
to the banks of the country the right to levy an unjust tax on the
checks of the entire business community of the United States,
lhe
1 LOO—17G93
5
N a t i o n a l Grange, representing 1,000,000 organized farmers, passed resolutions protesting a g a i n s t this form of extortion.
" Oh," they say, " only the jobbing houses of the United States
are opposed to the Ilanlwick amendinent." That is not the
fact, as I have already indicated, Mr. Speaker, lint suppose it
were true. Is there any reason why the men, who have millions of dollars invested in that branch of commerce, should not
have their side of a controversy heard here? True, they have
not given any dinners to anybody. They have not wined or
dined anybody. lint have they not a right to be heard? Suppose it were true that only the jobbers of the country were opposed to tins form of special taxation. Let us see if. numerically, they do not overwhelmingly overtop the banks, even if all
the banks were in favor of the proposition. There were in the
United States, according to the census returns of 190!), 51,048
jobbing houses. There are but 7,500 member banks of the Federal reserve system, all told. The more progressive of these
are opposed to this Ilanlwick amendment. Hut if all were in
favor of it, and the jobbers only opposed, there are 51,048 jobbing houses against the 7,500 banks.
But. Mr. Speaker, I have here on the table resolutions from
the retail merchants' associations in every line of activity in
this country, from the National Association of Retail Hardware
Merchants, from the National Association of Retail Grocery
Merchants, from the National Association of Retail Dry Goods
Merchants, from the national associations of nearly every line
of commerce in the United States, opposing this tax. The
National Association of Credit Men, representing a body with
an actual membership of 25,000 in every line of trade conceivable, has gone on record time and time again in opposition to
this unjust species of taxation. Nearly all the manufacturing
associations of the United States have presented resolutions
against this proposition.
There are more jobbing houses in the single State of Illinois
opposed to this proposition than there are member banks in
the United States in favor of it. There are as many jobbing
houses in the State of Massachusetts opposed to the 1 lard wick
amendment :is there are member banks in the entire United
States in favor of it. There are three times as many jobbers
and retail merchants and manufacturing establishments—not
to mention farmers—in the State of Mississippi opposed to this
Ilanlwick amendment as there are member 1 anks in the United
States in favor of it.
Take the State of Pennsylvania, the State of the gentleman
who proposes this recommittal [Mr. MCFAUDKN], and there are
4,783 jobbing houses—more jobbing houses in Pennsylvania opposed to this unjust tax than there are member banks in the
United States in favor of it. There are in Pennsylvania 107,134 retail merchants, every one opposed to this form of taxation. The opposition to it is so overwhelming that I offered
a colleague my entire yearns salary as a Representative in Congress if he could produce a*telegram or a letter from any living
sonl in favor of it unless from a banker. [Applause.]
Then they talk about an "anonymous propaganda." Perhaps
I have a misconception of what an " a n o n y m o u s " thing is.
This circular, which is exhibited here presenting reasons why
this form of delegated taxation should not be sanctioned, ex1100—17003
G
pressly states that tho fjcrouj^ issuing it included tlie official
representatives of tlie Button Manufacturers' Association of tlie
United States, the National Association of Clothiers, the National Association of Credit Men, the National Association of
Hosiery and Underwear Manufacturers, tlie National Glass Distributers' Association, the National Hardware Association, the
National Retail Dry Goods Association, the National Shoe
Wholesalers' Association, the National Dry Goods Association,
the National Wholesale Jewelers' Association, the St. Louis
Chamber of Commerce, and the Southern Wholesale Grocers
Association.
It Rives the names of the gentlemen who prepared and issued this " a n o n y m o u s " circular. In addition to
that, boards of trade and chambers of commerce from one end
of this country to the other have passed resolutions against
this rake-off. Nobody is for it except this group of bankers
represented by this committee of lobbyists that took up its
headquarters weeks ago at the Willard Hotel. [Applause.]
I present to the House for its discriminating judgment a
tabulated statement of three classes of business concerns opposed to this legislation in contrast with the number of banks
in the Federal Reserve System directly affected by this amendment. It will be noted that this statement does not take account of the millions of farmers and professional men who are
in opposition, but merely enumerates three classes whose representative bodies have declared their antagonism to this check
paying and collection charge scheme. It must also be considered that not one-third of these banks exact these charges
from the business men of the country, and. therefore, that the
fewest number of them would care to see the collection system
established by the Federal Reserve Hoard wrecked, as inevitablv it would be should this Senate " rider" prevail.
Manufac
turcrs.
Alabama
Arizona
Arkansiis
California
Colorado
Connecticut
Delaware
Florida
Georgia
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire—
Now Jersey
Now Moxico
HOG—17(i0:}
3,242
322
2,(104
10,057
2,120
4,104
80S
2, "»1S
4,039
098
18,3*8
8,022
5,014
3,130
4,184
2,211
3,378
4,797
12,013
8,724
5,974.
2.209
8,380
939
2,492
180
1,730
9,742
308
Jobbers.
475
00
300
2,174
509
395
77
375
829
74
3.420
985
831
505
800
088
302
1,013
3,275
1,308
990
238
1,047
129
447
41
177
2,035
80
Retailers.
15,3S3
2, 407
12,471
47,097
12,103
10,824
2,906
8,220
20,040
4.l''>2
SO, .508
33,330
29,337
21,209
21,477
10,899
10,354
20,244
48,701
35,448
25,099
11,513
43,413
4,097
15,527
1,497
5,307
44,189
2,941
Member
banks.
90
12
00
204
121
70
24
54
102
59
409
250
319
223
133
33
00
95
151
10ft
287
35
131
82
191
10
50
203
37
7
Manufac- Jobbers, i Retailers.
Grand total...
ISO,151
14,912
84'i
64, SOT)
18,565
10,433
107,134
8,208
9,237
7,461
19,878
13,362
4,154
4,208
18,845
17,137
10,266
26,321
1,530
5,926
675
SI
157
371
335
51,048 1,169,592
,571
10,860
;,9S
76
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Caro'ina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
District of Columbia
2, doe
436
381
•1,7K3
337
288
IIS
863
1,150
185
119
758
629
392
9X5
21
211
275, 791
Member
banks.
SO
831
17
76
125
112
531
24
4S
144
115
140
30
14
Now, Mr. Speaker, I want the House to understand how it
was sharply misled upon this question. There was not a word
of debate. There was tint one word of explanation of this Hardwick amendment prior to the adoption of the motion to instruct
the House managers. The whole event was sudden and surprising.
Mr. THOMAS. I just want to know about that wining and
dining. I have not seen any of it, and I should like to get there,
f Laughter. |
Mr. GLASS. I am surprised that the gentleman was not invited. He should indicate his indignation by voting against this
proposition.
Mr. THOMAS. I am going to look into this proposition.
Mr. GLASS. Mr. Speaker, 1 must decline to yield further.
Mr. THOMAS. The gentleman has got to yield
The S P E A K E R . The gentleman from Virginia declines to
yield.
Mr. THOMAS. The gentleman has got to yield. I am with
him on thi>> | Laughter.!
Mr. GLASS. No Member of the House should permit himself
to be troubled by any consideration of consistency, because not
a word of debate or explanation was had on this Hardwick
amendment. A similar " r i d e r " was proposed in the House and
thrown out on a point of order its not germane; and it is not
germane. It is a legislative thorn in the llesh. It is utterly incongruous. considered with respect to this great and momentous
legislation proposed here for the advantage of commerce and
industry and to help the banking business of the United States
better to meet impending didiculties. Not only was there no
explanation of this "rider," but, on the contrary, when the vote
was being taken, gentlemen who now are very critical about the
ethics of the case, affecting great concern for the proprieties,
stood at the door and told Members as they came in, " O u r vote
is ' aye.' " as if there were some party division. More than a score
of Members have come to me in person, or have told me over the
telephone, that they were misled into voting far the amendment,
1100—17603
8
nrnl that they were utterly opposed to it and that their constituents were utterly opposed to It. I do not want to be unpleasant.
It is too easy, under provocation, ty he unpleasant and too hard
U> he agreeable; but I do feel some degree of resentment, In the
circumstances, at the criticism of the gentlyman from Mississippi
[Mr. H A R K I S O N ] and my colleague of the committee from Pennsylvania [Mr. M C F A D D K N J about the ethics of this case, and
their talk about a lobby.
Now, Mr. Speaker, a word as to the merits of this proposition.
From what source does a bank, whether it is a country bank or
a city bank, derive its revenue? From its capital? Why, in the
rarest instances. A bank that is prosperous enough to pay a
dividend merely by the use of its own capital would be a wonder.
Then, how do banks manage to pay dividends? Why, by loaning
out the money of their depositors at interest, and some of them
at too high a rate of interest, particularly in the territory of the
gentlemen who are advocating this check-paying amendment.
[Applause.] They derive their profits from loaning out the
deposits of their patrons; and anybody familiar with banking
processes knows that banks ordinarily require their patrons to
keep a certain " l i n e " of deposits to pay for trouble and expense
in handling their accounts. I have here a written statement of
one of the leading bank examiners of the United States saying
that both city and country banks, as a rule, insist that the
borrower, who in nine cases our of ten is a depositor, shall maintain an average balance of 20 per cent. In other words, if you
are a business man and want to borrow .$10,000 from your bank
with which to conduct your business, the hank does not actually
let you have $10,000. On an average It lets you have $8,000,
and requires you to leave the other .S'2,000 there to be loaned to
some other business man at a profitable rate of Interest. In this
way and by other legitimate devices hanks derive their revenue
from interest on money loaned them by thair patrons. There are
few well-conducted banks, either country or city banks, that
would care to have the business of any merchant who did not
keep a line of deposit with it .sufficient to far more than cover all
costs and trouble of the account of that business house. The
gentleman from New York [Mr. IIUSTKD], a banker himself, has
stated that last year all the banks, country as well as city, made
a greater profit than they had made In an average of -17 years
before, and they do not need this form of graft. [Applause.]
The banks have the use of their patrons' money, and it is
vastly less expensive to remit on balances than it would be to
pay funds actually across the counter. Pending the dispatch and
return of checks, the accounts on which they are drawn are
available to the banks in the discount operations, and from these
accounts the banks derive more profit than is involved in the
proposed charge of one-tenth of 1 per cent on out-of-town checks.
As for having to " s h i p funds," that is a myth largely—a figure
of speech. The Federal reserve banks explicitly agree to pay
all cost of shipping currency, so no charge for that can be assessed against any remitting bank.
It is idle to inter that the obligation of banks to business men
is not as distinctive or as great as that of business men to banks.
The accommodation is leciprocal; and, with the vast majority
of banks, the deposits of their patrons are accepted with no
other purpose than to pay checks at their face value. There
1100—1701)3
9
never was any statutory sanction for anything else; but under
specious and illusive pleas of compensation for "constructive
interest " loss, and for the expense of "shipping currency to distant
points," and for "service rendered in transferring credits," the
practice of deducting charges, varying from one-tenth of 1 per
cent to 1 per cent in some cases, became firmly established in
some sections, ft got to be not only a burden, but an abuse—in
many instances a scandal—which the more progressive business
communities of the country long since refused to tolerate. None
of the banks of the New England group exacts these charges;
few of (he Eastern group make the charge; the practice in the
Middle West has been greatly abated; the abuse persists in its
flagrant form chiefly in parts of the South and the far West.
It should be stopped everywhere; and the par collection system
institued by the Federal Reserve Board will put an end' to it
ultimately, if not tampered with by vicious legislative interference, such as this Hardwiek amendment in its original draft
proposes.
Bank notes issued under authority of the national bank act
signifying the indebtedness of the bank to the holder are required by law to be received everywhere sit par. Why should
not a merchant's check on his deposit account, duly "indorsed
by a responsible person or concern, be accepted by common
consent of the banks at its face value? What is there extraordinary about the suggestion to standardize checks and drafts?
They constitute 9L> per cent of the currency of the country in
paying accounts and adjusting balances. And the banks themselves adjust their own balances through this very medium.
The talk about the "great expense" of collecting and paying out-of-town checks is in great degree rubbish. The cost is
negligible, as any frank banker will tell you. It is so inconsequential that the Federal Reserve Board has been unable
to get an actuary with enough skill to figure it out. The
collection costs of the Federal Reserve System itself have been
less than one hundred and fiftieth of 1. per cent! I have
here a letter from a Tennessee banker which furnishes a verv
definite illustration of the difference between the old system
of check collection graft and the new system of inexpensive
collections. This Tennessee banker writes:
The t h o u g h t has occurred to us t h a t you would like to know how
the new collection a r r a n g e m e n t is w o r k i n g w i t h member banks.
We
give you the f o l l o w i n g e x a m p l e :
At
» North C a r o l i n a , there are three h a n k s — t w o n a t i o n a l a n d
one Slate.
They were evidently in a c o m b i n a t i o n prior to J u l y 15,
1010, on the question of exchange.
Most of I lie checks of their customers had stamped on them " Not collectible through the express office "
or some such wording. This is out of our territory, but we could not
collect the items through any of (lie o r d i n a r y channels, a n d were
forced to send them direct, only tak'.ng the checks for collection a m i
giving our customers all the money we received.
F o r live days in J u n e we sent them $5,950.85, on which we p a i d
exchange at the rate of l>5 cents per h u n d r e d , or a total of $15.10.
We are h a n d i n g you herewith one of their r e m i t t a n c e letters, w h i c h
shows they charged us $9.00 on items aggregating $3,985.70.
T a k i n g live days in J u l y , or since the collection a r r a n g e m e n t was
entered i n t o by the Federal Reserve Hanks, we have sent on the same
through
the Federal Reserve R a n k of A t l a n t a , a total of
$7,170.03, at a total cost of 12 cents.
The t'nie the items were in t r a n s i t was greater when sent direct
t h a n when sent t h r o u g h the Federal Reserve R a n k of A t l a n t a .
This Is not so m u c h a saving to us as it is to our customers, a n d
more people will be benefited by this system of collection, 10 to 1,
1100—17093
10
than will be harmed )>y a loss of revenue to these hanks who have
been so outrageous in their charges.
This case is typical. It reveals the vice ol' the old system as
clearly as it exhibits the ediciency of the new. Under the new
collection system (hose Tennessee merchants had checks aggregating $7,170.03 quickly collected at a cost of 12 cents, while
under the old svstem, with its roundabout routing, it cost these
merchants .$15.10 to collect $5,950.85—the difference between the
obsolete stagecoach and the modern steam railroad facilities!
But, it is contended, this transaction deprived three " struggling
country banks of the difference between about $18, which they
would have received for paying the larger amount of checks
under the old system, and 12 cents actual cost under the now
system. Leaving out of question the moral obligation of these
banks to pay their depositors' checks without deduction, the fact
is that two of these struggling" banks have accumulated a
surplus almost equal to their capital; they pay an annual dividend of 10 per cent and their stock sells for nearly twice its par
value! This Illustration could be multiplied indefinitely in an
even more aggravated form. However, 1 would repeat and accentuate the statement that bankers of vision, with a progressive
spirit, do not engage in this practice. They long ago discarded it.
The thing is pursued eld ell.v by those who fail to comprehend the
advantages of modern methods and who, in their petty acquisitiveness refuse to adapt their business to a system pregnant
with larger success and a higher spirit. The case was tersely
put the other day by Mr. Perre Jay, of the New York Federal
reserve bank, when he said:
The banks wHeli are now endeavoring to have the deduction of exchange legalized do not seem to recognize that a new country-wide system
to facilitate domestic settlements by both checks and transfers has been
created and is m process of development. Instead of looking ahead and
endeavoring to cooperate they stand squarely across the path of progress
seek to turn buck the hands of the clock. W i t h minds focused on
thr barrier which the law desires to remove they do not see the sttuat ou in its proper perspective.
The fail to grasp the advantages to
business of economical ami scientific methods of making settlements;
tliev fall to understand that every move toward making local checks
more acceptlble away from home enables the local bank to keep more
local money at home.
There Is the crux of the matter. That is a happy phrase:
" M o r e local money nt home." Country bankers—which means
nil bankers outside 51 central reserve and reserve cities—in
order to clear their own checks. " free of charge," as they vainly
imagine, have for years shipped away the funds of their local
depositors to the money centers at a 2 per cent interest rate,
to be used for stock speculative purposes, instead of "keeping
more local money at home," as Mr. Jay says, to loan to local
merchants and industries sit a reasonable yet profitable discount.
There is no telling, Mr. Speaker, of how many hundreds of millions of dollars country communities have been drained nor
computing the commercial distress and industrial deprivations
they have endured by reason of (his practice of country banks
sending local funds away from home. There was little rational
defense of it under the old system ; there is absolutely no excuse
for it since the passage of the Federal reserve act. When the
required reserve of country banks was 15 per cent, the combined
figures show that they actually carried 29 per cent. The
average Interest rate on these excess reserves carried largely
for the purpose of securing the par collecting of their out-of1100—17003
11
town chocks is 2 per cent. With money worth 5 and (1 per cent,
and in many localities bringing 8 and 10 per cent, the cost of
3 or 4 per cent or (5 or S per cent on excess reserves of 14 per
cent would very much reduce the income side of the exchange
accounts. The establishing of the Federal reserve banks makes
it in most cases unnecessary for the banks to carry excess reserves and thereby increases their earning capacity.
Moreover, the reserve requirements of country banks were
lowered by the Federal reserve act for the express purpose
of covering this paltry 2 per cent, winch they received for
local funds transferred, and which never should have been
, transferred, to money centers—a fact which they seem always
to ignore. A trained banker of Minnesota states t'ce case with
great perspicacity in a letter from which I quote two paragraphs :
It should he realized by nil that any saving in the expense of
collecting checks will be to the advantage of all the banks in the
country.
The Federal reserve bank, by providing a central agency
in each district through which checks may be collected, lias provided
a method whereby checks n a y be collected with the least expense.
This is due to the doing away with Indirect routing, thus reducing
the number of times checks are handled, and the saving of time in
securing final payment.
If the sy.ftcin is properly supported by the
banks of the country, it will lessen the expense in remitting for checks,
as the banks of New England have demonstrated through 17 years
of experience that it is much cheaper to receive one remittance a' day
and remit in payment, tluin it is to receive remittance letters from
a number of correspondents, as well as others, and account for them.
One strong argument that occurs to us as to why that part of the
Federal reserve act relating to charges on bank checks and drafts
should not be amended at the present time, is that the majority
of
the bank,s in thin country
transacting
85 per cent of the hanking
business of the country,
arc not charging
for remitting
for their
checks,
and that the collection system of the Federal reserve banks should
be given a fair and Impartial trial before any amendment to the law
Is considered, and It would not be fair to the banks of the country
to amend the law at the request of the smaller number of banks which
have, for selfish reasons, always been opposed to a proper and economical system of collecting checks.
That sums up the case. Nearly 10,000 banks joined the collection system instituted by the Federal Reserve Board. These
constitute two-thirds of the commercial banks of the country.
They do 85 per cent of the commercial banking business. They
do not charge for paying or collecting checks. This Senate
, " rider," drafted by a bank lobbyist and through organized propaganda grafted onto a bill here designed to help banking and
facilitate commerce, is merely a statutory invitation to these
10,000 banks, as well as to the small group doing only 15 per
cent of the country's business, to renew this tax on commerce
and industry. It is a legislative sanction of an obsolete and
vicious practice which has never had the countenance of law
and should not have it now.
And I warn this group of bankers wvich assumes responsibility for this renewed attempt to erect this tollgate across the
highway of commerce that it is sowing to the wind and will
reap the whirlwind. The business men of the United States are
thoroughly aroused over the situation, and if this legislation
should be enacted, except in the modi tied form proposed by this
conference report, they will systematically refuse to patronize
banks which persist in this vice. Moreover, let the country
banks take warning. Under the law they may no longer count
balances with correspondent banks as reserve; hence there no
1100—17003
longer will he induceoient to carry local funds in outside hanks
at 2 per cent. This will presently occur; and when it does the
big banks will begin to charge for remitting funds also, should
this Senate rider, unmodified, prevail. I f the charge for remitting funds to cover checks becomes general and applies to central
reserve and reserve city banks, ns well as the country banks, it
is evident that banks in general will not profit by the result.
A bank in remitting to a Federal reserve bank wishes to be able
to send offsetting items rather than cash, and the whole proposition of clearing checks depends upon this principle. Heretofore a
charge has boen made by the country bank for remitting, but
no charge by the city bank, whereas under this Senate " rider"
1110 city bank is authorized to charge as much as the country
bank. If, therefore, a bank receives one-tenth of 1 per cent on
all items drawn upon itself, but pays out one-tenth of 1 per
cent for collecting all items it has received, the probability is
that the large city banks will be the gainers.
An accomplished country banker in the State of New Jersey,
a n u n who understands the philosophy of banking as well as the
practical details, writes me that—
I f the F e d e r a l Reserve S y s t e m w a s n o n e x i s t e n t , the f a c i l i t i e s a n d
e c o n o m y w h i c h it so a d m i r a b l y affords w o u l d j u s t i f y the o r g a n i z a t i o n of
n system for the exclusive p u r p o s e of c l e a r i n g ni.d c o l l e c t i n g out-of-town
checks, b u t the o r g a n i z a t i o n of a p r o p e r system for t h i s p u r p o s e u n d e r
p r e s e n t c i r c u m s t a n c e s w o u l d be a needless w a s t e of l a b o r a n d cap.'tal
a n d In consequence a n u n n e c e s s a r y d r a i n u p o n the p u b l i c . T h i s m a y be
regarded as a n a n s w e r to those w h o c o n t e n d t h a t the F e d e r a l Reserve
S y s t e m s h o u l d not u n d e r t a k e the m a t t e r of h a n d l i n g out-of-town checks.
T h e c o n d i t i o n of a f f a i r s wa« bettered at i stroke w h e n the F e d e r a l
Reserve Hoard u n d e r t o o k to collect out-of t o w n checks.
.Mr. Speaker, there are a multitude of reasons why this check
paying and collection charge should be abolished entirely and a
fairer and more scientific system substituted, but the subject Is
technical and. therefore, difficult both to explain and understand,
especially in the compass of limited time. But I very earnestly
protest against this Senate rider which seeks to legalize, in the
worst possible form, a banking practice that the best banking
sentiment itself condemns.
The gentleman from Ohio fMr. SWITZEK] asked me awhile
ago why the conference report does not omit the Senate amendment altogether, if the practice which it proposes to sanction
is so indefensible. The only reason we did not discard the provision was the instruction given by the House. While we felt
that the House did not act with full knowledge of the facts,
and knew that scores of Members bad voted under misapprehension, the conferees did not feel at liberty to "contemptuously" disregard the instructions of the House, as the gentleman' from Wyoming [Mr. Mois-nixr.! suggests we have done. In
the circumstances the host; we could do was to retain the
phraseology of the Senate " r i d e r " and apply an antidote, which,
we feel confident, will correct its evil effects in large degree
if not entirely. The gentleman from Ohio [Mr. SWITZF.RI also
suggested that the modification of the Hardwlck amendment
proposed by the conference report is intended to prevent any
check-collection charges being made by anybody. I frankly
stated that I hope and believe the modifications proposed by
the conferees will have the result of abolishing till charges beyond actual cost, which, in our view, would he the only " reasonable charge" that could be made. Inasmuch as the Federal
1100—1709:1
13
reserve act requires Federal reserve banks to accept at par all
checks and drafts of member banks, the conferees unanimously
agreed that member banks should be prohibited from exacting
check-collection charges from the Federal reserve banks, as
there should bo reciprocal arrangements as well as community
of interest. This modification itself will largely tend to draw
the fangs of the Senate rider and circumscribe its utter viciousness. For these and other reasons, which I have not the
time to present, I urge I lie Mouse to vote down the motion to
recommit the 1 >i 11 with instructions.
Without objection, Mr. Speaker, I shall append to my remarks
the circular letter which has been several times alluded to here
as an " a n o n y m o u s " letter, but which, as will readily be seen,
has a very definite and a very respectable paternity:
ANVWIIERE,
SOMEWIIKKE,
OR
NOWHERE ?
" W A S H I N G T O N , D . C . , May
19,
1917.
A group of gentlemen w h o happened to meet in W a s h i n g t o n a n d w h o
represent widespread business interests in various lines t h r o u g h o u t the
country have prepared tills statement of reasons why Congress should
reject the I l a r d w i c k a m e n d m e n t to the Federal reserve law, or a n y
other measure designed to accomplish the same purpose, viz. the purpose
of a l l o w i n g bankers to charge for p a y i n g checks d r a w n by their own
depositors upon funds in their keeping.
P a y m e n t of such checks can
not be classed as n service to the p a r t y presenting them for p a y m e n t
I t is only the discharge of an obligation which the bank is bound to
discharge on demand.
The group Included official representatives of the B u t t o n Manufacturers Association, N a t i o n a l Association of Clothiers, N a t i o n a l Association of Credit Men, N a t i o n a l Association of Hosiery and Underwear
M a n u f a c t u r e r s , N a t i o n a l Class D i s t r i b u t o r s Association, N a t i o n a l Hardware Association of the United States, N a t i o n a l R e t a i l I)rv Goods Association, N a t i o n a l Shoe Wholesalers Association, N a t i o n a l Wholesale D r y
Goods Association, N a t i o n a l Wholesale Jewelers Association, St. Louis
Chamber of Commerce, a n d Southern Wholesale Crocers Association.
The committee appointed to prepare a n d Issue the following s t a t e m e n t
consisted of Messrs. S. W . Campbell, C. It. Carter, \V. R. Corwine
T h o m a s A. Fern ley, E. L . Howe, J . II. M c L a u r i n , W . D. S i m m o n s , a n d W
w . orr.
The Federal reserve law a n d its development, under the able administ r a t i o n of the Federal Reserve Hoard, is g r a d u a l l y m a k i n g a country
merchant's check worth 100 cents on the dollar anywhere.
The creditors of these m e r c h a n t s are entitled to p a y m e n t by check or
some other credit i n s t r u m e n t which is w o r t h 100 cents on the dollar
somewhere.
These country bankers are a s k i n g Congress to pass a law which will
make a country merchant's check worth 100 cents on the dollar nowhere
The I l a r d w i c k a m e n d m e n t would make It legal for a bank to charge for
p a y i n g Its own checks in any m a i m e r .
THE
HAUDWICK
AMENDMENT
REASONS
FOR
ITS
REJECTION.
I n order t h a t we m a y not give a n y w r o n g Impression of our a t t i t u d e
toward the b a n k i n g business or t h a t we are in anv w a v disposed to look
at this problem only from a one-sided or selfish point of view, let us say
right in the b e g i n n i n g t h a t we appreciate t h o r o u g h l y the difficult situation in which the small town bankers find themselves at present as
the result of recent developments, a n d share the apprehension that t i n y
a n d their friends feel for their welfare in the f u t u r e if the present
course of development continues and if they persist in their opposition
to m a k i n g changes In their methods a n d to a d j u s t i n g themselves to
present conditions In order to take a d v a n t a g e of a d d i t i o n a l a n d new
ways of m a k i n g money offered by the new law a n d which may he made
to act as a n offset to the loss of t h a t part of their former revenues
which has come from practices which this I l a r d w i c k a m e n d m e n t is designed to sanction and perpetuate, but which, for the following reasons,
we believe should no longer be a u t h o r i z e d or permitted :
Let us say also in t h a t same connection t h a t we share t h o r o u g h l y the
conviction t h a t hankers should have adequate compensation for all"
services which they render to their p a t r o n s a n d t h a t their compensation should cover not only a n y direct outlay involved in rendering that
service, but should cover also indirect or overhead c o s t s — a n d a profit
besides. However, t h a t compensation should be charged to a n d paid by
1100—17003
14
the patron of the bank to whom the service is rendered, and no banker
should be p e r m i t t e d — m u c h less a u t h o r i z e d — t o conspire with his patron
to put the burden of this expense upon a third party who lias no voice
in the arrangement.
That would be taxation
without
representation,
and if we remember correctly, there was a popular prejudice against
that principle in this country at one t i m e — a prejudice against even
tii." established government's taxing thoue under its jurisdiction without their consent. C t r t a i n l y we of this generation have a right to object to our <Jovernincnfs conferring upon any very small percentage
of the citizens of this country the right to put a tax—direct or indirect—upon the remainder.
this
practicallv a Nation engaged in commerce, any plan which
authorizes one small group of men to put a tax upon the commerce of
the country, practically authorizes them to tax for their own benefit and
profit the remaining large percentage of the people.
We appreciate the fact that the universal establishment of the par
collection system in this country would put a considerable part of these
small bankers in an embarrassing position, but since that is the direct
result of their own action, and since they have gotten themselves into
this position bv higgling with facts and by a t t e m p t i n g to get away
from sound principles ami f u n d a m e n t a l laws, there does not seem to
us to be any lustilication in allowing them to continue to abuse the
rest of the business community for the purpose of their relief
That they are responsible for the present situation is due to the
fact that, beginning shortly after the close of our Civil W a r but beg i n n i n g more generally about 25 years ago, these bankers offered . n 9
an inducement to persuade local merchants to carry accounts witli
them to so handle their checks as to relieve them of having to pay
exchange in remitting for their merchandise accounts to the various
points at which they were due and payable. They evidently had two
objects in mind in making this offer: (1) An increase of the r deposits
and the holding of all these funds all during the time checks in payment should be in circuit back to their point of origin, and (2) revenue
which came to them through the deposit by these country merchants
of exchange which they received direct, or from their farmer customers
to whom it is paid bv buvers of produce, cattle, etc., the payments
usually being made in checks or drafts on New York City.
These checks and drafts the country banker accepted for collection,
making a charge for that service and incidentally getting the exchange
' " s o o n after that, however, he developed the idea that, in addition to
getting this New York exchange for nothing and charging his depositor
for the privilege of giving It to him, lie might then draw on the credit
thus established to meet his own demand obligations (his depositors
checks) and by doing so retain the further use ot the money during
the circuit of' this second credit instrument.
Then, still
.iter lie
e w l v e d the plan of making a charge for paying tills demand obligation
in t h a t way, calling it in some instances a collection charge; in other
The'Tpiestio'V'nahiriufy^a'rfses. Low did be succeed in putting that
over and why was he permitted to do so? That was simply because he
took advantage of his position and the dependence ot the country
merchant upon him to influence the country merchant to adopt this
course using the argument (1) that it would relieve the merchant of
paving exchange and following that up with the still more pungent
and effective argument that as the country merchant expected his bank
to do him a favor occasionally, he would, in turn, be expected to cooperate with the banker by making his remittances in this way.
It
was the price of accommodation from the banker when the merchant
m
' T h e " w h e n ° the'°countr y °nierchant received a letter from hls creditor
objecting to this method of payment as not adequately coveiing his
obligation and took it, as he usually did to his banker to ask how to
answer it, the banker coached him to stand pat and reply that if his own
checks were not accepted in payment of his account, he would close the
account and buy his goods somewhere c i s t — t h e banker s argument to
the merchant being t h a t no firm would be fool enough to throw away
a good account for a 15-cent charge and that would be ail t h a t would
be Involved in any one instance under discussion.
Of course, as one manufacturer or Jobber after another yielded to these
tactics rather than lose their accounts, the banks began to coach eacn
other with a view to making the proposition as general as possible,
because the more general tttey made it, the more chance they l a d ot
holding on t™ the position permanently since there was I-rac cal y no
way for the victims to get together and tight them. This, In the light of
a recent statement made In the official organ of the American Bankers
Association, should be kept constantly in mind as evidence t h a t these
1100—17093
15
banks have themselves never seriously contended t h a t they were entitled
to collect this charge for paying their checks or that it was right, or
good business, or sound banking. They have contended for its maintenance on the principle t h a t miijlit makrn right.
Their arguments are
very like those which the German Government has recently tendered to
us in their answers to our insistence upon our rights to traverse the
high seas. The German Government told us that If we did not stay away
from those portions of the high seas which they proscribed, we would
he responsible for 1 lie results; and if we got hurt, it would be our own
fault.
In like manner the American bankers, through their olllelal
organ, say :
, „ .
" T h e seller of goods lias a right to demand payment from the buyer
in actual cash or exchange, t h a t is worth 100 cents on the dollar at the
p o i n t of sale, but if t h a t merchant surrenders that right and accepts
cheek on the local bank in the home town of the buyer, it takes w i t h
that check the burden of its liquidation."
The similarity between this and the German sophistry speaks for
Itself. It is particularly interesting in view of the words which follow
the above quotation from the report of the " C o m m i t t e e of Twenty-Five"
of the American Hankers Association, which has been most industrious
in lobbying this measure through Congress, viz " No law rule, or regulation should permit this burden to lie shouldered on to a third party, either the city or country bank. The buyer
and seller are (he beneficiaries and one or the other should bear the
expense
* * *. The letter of the Federal Reserve Hoard overlooks
the principles involved, that Is, that the purchase and sale of exchange
is a legitimate function of banking."
The idea that the Federal Reserve Hoard does not recognize the principles involved, is interesting but not nearly so much so to us as the
recognition of tiie principle that a " b u r d e n " of that kind should not
be shouldered on to a third party, as that is exactly what this " C o m mittee of Twenty-Five" bankers have asked Congress to authorize them
to do.
It should therefore only lie necessary to show that to be the
case, to bring about the voluntary w i t h d r a w a l of the measure by those
who have been, for several months, working so constantly for its
adoption.
It is not that the Federal Reserve Hoard has failed to see the proposition in its true light ; it is the " Committee of Twenty-Five " (bankers)
who have failed to see that in an effort to present a plausible reason for
being permitted to do a most unwarranted thing, they have overlooked
the fact that the sale of merchandise is not the transaction to which
this law would apply. The transaction to lie effected by this law is one of
those which, as they state, " is a legitimate function of banking," viz,
the purchase and sale of exchange. This Is evidenced by the fact that
the law which they ask Congress to pass would apply without respect
to the occasion for the payment In question or whether there had been
a n y t h i n g bought or sold. The contractual relations of the buyer a n d
seller of exchange are alone affected by this provision ; and the proposition that " no law, rule, or regulation should permit or require that the
burden be shouldered on to a third p a r t y , " applies thoroughly.
The patron of the banker in question has occasion to make a payment
In a distant point. The reason for having to make It Is not a factor.
Whatever arrangement is made between him and Ills banker with reference to the credit instrument which Is used to make the payment, it
does not Involve the payee of that Instrument, nor can the compensation for the service rendered be shouldered on to tills third p a r t y —
the payee.
That however, is what is proposed by this amendment and what
they rightfully, although unwittingly, show that " no law or rule
should permit."
. . .
,
, , ,
. , .
Now, instead of contending on the basis of principle or right or
equity for the continuance of this practice, they fall back universally
as a ' f i n a l argument upon the fact that so large a percentage of their
revenues has come from this source that to stop them now would be a
serious handicap and inroad into their earnings and they therefore ask
the United States Congress not only not to disturb them In this practice if thev are able to continue it on the principle that might makes
r i g h t ; but as soon as the business Interests of the country -by a
proper, consistent, and logical law—provided for the gradual adjustment of the practice and conformity to sound principles, these bankers
come then to the United States Congress and ask the passage of a law
to enable them to retain the right to put this tax burden upon all
third parties. They have gone still further in demanding the right to
place this charge burden on a third party even when no exchange is
asked for or furnished, and hence no basis for a claim t h a t any service
has been rendered to anybody.
1100— iron:!
1G
W h y do these hankers insist upon p u t t i n g it unjustly upon a third
party?
Simply because they have taught their depositors that they
need never pay exchange and have no faith in their ability to recover
from t h a t position.
As the result ol a most active lobby, they Introduce a measure which
Is designed to give them a special privilege of a meat absolute character, designed also to relieve them of some of the most fundamental
Obligations of a banker to his patrons and to the public. The amendment is carefully and painstakingly worded to relieve the banker from
bis responsibility for meeting his demand obligations at I'M) cents on
the dollar and to permit him in practice to keep for himself a small
part of every dollar deposited with him by sanctioning his refusal to
pay in full any proper demand therefor.
W e recognize that it will be very profitable to the bankers of this
country to be permitted to do this Instead of being responsible for
and required to pay out 100 cents for every dollar deposited with
them on demand ; but it Is certainly not commercial banking as that
has been known up to th's time and it seems to us a most astounding proposition to ask the Congress of the United States to put Its
sanction upon any such procedure.
When a bank issues its notes in the form of currency, it expects
nil other banks throughout the length and breadth of the land to accept these (its demand obligations) at 100 cents 011 the dollar, hut
this same banker desires Congress to relieve him from the responsibility
of accepting his own demand obligations on the same terms.
This whole proposition is therefore not only unsound and unmoral
In t h a t It is designed to permit a banker to discharge his obligations
by paying less than the a m o u n t of them, but in addition to that, It
Is thoroughly uneconomical In the way It will work out in actual
practice.
I'nder this system, a country merchant, in order to pay Ids
account, will mail, let us say from Selma, Ala., to his jobber In Chicago, a check 011 his local bank, for the exact a m o u n t of his debt.
That check will go around the circuit from the Federal reserve bank
In Chicago, then to the Federal reserve bank in A t l a n t a , and then
to the banker In Selma 011 whom 't Is drawn, and when It gets to its
destination, it is, according to tills plan, nothing more than an order
for t h a t banker to send out in exchange for It another check for a less
amount to pay the same debt.
This second check then starts on Its round, all d u r i n g which time
the banker In question still has the use of the funds, which in reality
should have been in the hands of the creditor of the country merchant.
This llrst circuit, therefore, of the country merchant's own check is
a perfectly useless procedure, requiring a lot of handling and consequently unnecessary expense, a m o u n t i n g to a great many millions of
dollars of needless burden upon the commerce of the country, for which
It gets absolutely nothing I11 return, and which would be entirely
obviated by having the merchant do what, as stated in the American
Hankers Association's ofllclal organ, lie should do and what his creditor
has a right to demand of him ; viz, send, in the first place, a check
which will pay the amount.
J u s t as the Federal Reserve Hoard is perfecting a thoroughly well
developed system, which would eliminate all of this burden of useless
expense, which has been gradually saddled upon the domestic commerce
of the country by these bankers, and just as t h a t board is establishing
a system which these bankers acknowledge we are justly entitled to.
the Congress of the United States proposes to enact a law designed
to establish, permanently, the right of bankers to Impose this Injustice
upon the remainder of the citizenship.
This Is not a war measure; it is not claimed to be a war measure,
but it is proposed to Impose it at a time when the business of the
country is being asked to shoulder the heaviest burden of taxation it
has ever freed, a time w h n the thoroughly enthusiastic cooperation
of the business interests and the ready acceptance of their unusual
burdens are of partlcul ar Importance. Certainly this is not a happily
chosen time to add to those burdens by extending to a privileged few
the right of taxation and the right to put It upon those with whom
they have 110 business relations, giving those taxed 110 voice In the
matter nor any alternative.
Could there be a n y t h i n g more out of
harmony with the spirit and attitude which the people of this country
are asked to show toward Congress and the administration V
110G—17003
o
@FedFRASER