Front matter (continued 9)

Creditors have received (September 30, 1912) 26,750,925

—————

Balance due creditors $7,563,708

Creditors of these 47 insolvent banks have, therefore, received an average of 77.9 per cent. For these receiverships it can safely be estimated that the loss to creditors will be no greater than in those banks already closed, namely, 17.4 per cent.

During the past ten years 119 National banks have been placed in the charge of receivers. The affairs of 78 of these banks have been finally closed and 41 are yet in the charge of receivers. The liabilities of these 119 banks, as shown by the enclosed statement, aggregate $66,804,214. Creditors have received $56,252,544, or 84.20 per cent. If creditors were, therefore, paid no further dividends, the loss during the ten years mentioned would average only about 15.80 per cent. It cannot at this time be determined what the ultimate loss will be to creditors of the 41 insolvent banks which failed since 1902.

Yours very truly, W.J. Fowler, Deputy Comptroller.

Mr. Lawyer: Well, here goes another complete knock-out for me, I am plumb out, over the ropes this time. I don't know that I can ever recover from that blow.

Mr. Banker: Just a moment, gentlemen, while I admit that you have won your fight for the depositors, you must remember that although you have an insurance that will cover net losses after you have cleaned up the failures and closed out the assets, you will still have quite a problem to solve to meet the demands of the depositors when the failure takes place.

Mr. Laboringman: If the depositors in the National banks had been insured in some way during the past forty-nine years, I do not believe that we would have had one failure in ten that we have had, and if you will now protect the banks, as Mr. Banker proposes, through his supervision by a board of control, I do not believe that we will ever have another; then why not give our 20,000,000 depositors the benefit of it, as it will cost nothing and will absolutely prevent runs on your banks.

Mr. Merchant: Yes, and also stop the hoarding of money, which is a curse to any country where it takes place. I am not sure, gentlemen, but what the adoption of this principle of deposit insurance will do more to guarantee steady conditions than any other one thing.

Mr. Banker: Well, while the problem has its difficulties, I really think it is up to us to work it out in some way.

The folly, greedy purpose and unscrupulous methods of some of our fraternity have not only brought misfortune and overwhelming distress to their particular neighborhoods but a cataclysm to the whole commercial world because of the shock to banking credit generally.

Mr. Merchant: Well, Mr. Banker, how are you going to protect yourself against those bankers who think that they can do better by remaining outside of the National Banking System, because they can do a scalping and scavenger business if left free. Of course, it will be advantageous for the upright banker to come into the National System.

Mr. Banker: You will remember that in 1865 Congress passed a law imposing a tax of 10 per cent upon all bank notes, except those based upon Government bonds. You also know from what has been said that the notes of all other banks immediately disappeared from circulation.

Congress has ample power, as was pointed out fully the other night, and should put a tax of 10 per cent, or even 20 per cent if necessary, upon all deposits a bank may have against which it does not hold the reserves prescribed by the National laws.

Congress has other methods it can adopt growing out of its constitutional powers by which every institution in the United States doing a banking business may be compelled to conduct its affairs upon sound principles.

Mr. Merchant: From some statement we were looking at the other night we learned that the banks of the country were now carrying as a part of their reserves something more than $100,000,000 of National bank notes. The fact is that the amount is probably twice that, as the banks of the country, outside of the National banks, make no distinction in what they hold as reserves, between gold certificates, silver certificates, United States Notes and National bank notes. Of course this is nothing but a scheme of inflation, for there may be other credits based upon these bank notes which are themselves nothing but debts, aggregating all the way from $500,000,000 to $1,000,000,000, or more, according to the percentage of reserves the banks holding them may be carrying.

Mr. Banker: I would impose a tax of 10 per cent per day on every bank note that any bank in the United States holds as a part of its required reserves. It would not take long to force the substitution of gold coin, gold certificates, or other lawful reserves in place of these I.O. U.'s of the National banks.

Mr. Manufacturer: During our discussions it has been demonstrated to me, at least, and I am sure to all, that there is in fact no more justification, economically speaking, for holding United States notes, or greenbacks, as a part of the reserve of a bank than National bank notes. Do you think it is wise to continue these United States notes indefinitely, as a part of our bank reserves?

Mr. Banker: I certainly do not. They are not only unfit for bank reserves, but are teaching economic lies every day that they remain out.

You are aware, I have no doubt, that the banks of this country, generally, are paying interest upon their deposits; probably as much as 2 per cent upon the average. I would impose a tax of 2 per cent upon our bank note issues, because banking is carried on upon about that basis. If a bank pays 2 per cent upon deposits, and 2 per cent upon its notes outstanding, the burden is precisely the same upon both forms of bank credits.

I would use a part of this 2 per cent tax upon the bank notes, which would amount to approximately $25,000,000, for these purposes:

First: To pay the expenses of the several commercial zones and the American Reserve Bank.

Second: I would pay into the interest department of the United States Treasury an amount equal to 1 per cent per annum upon the $730,000,000 2 per cent United States bonds; so that the Government could convert these 2 per cent bonds into 3 per cent bonds, and return them to the banks to whom they belong.

Third: Whatever cash I had left I would use to convert the United States notes into gold certificates.

In the course of fifteen, at the outside twenty years, I figure, we would be able to convert all of the United States notes into gold certificates, and leave our banks with reserves of gold alone, with the exception of the subsidiary coin, which would, of course, be only nominal in amount.

No one will deny that this would be a most desirable thing to accomplish.

Mr. Farmer: No, I don't think that anyone would make such a fool of himself as to argue or contend that that would be a bad thing any way, and you seem to have a very simple method of bringing it about.

Mr. Lawyer: I noticed that you said that the tax of 2 per cent upon the bank notes would produce about $25,000,000 a year. How do you make that out, when we have only $750,000,000 of bank notes out? That would give us only $15,000,000.

Mr. Banker: I am glad you asked that question. You see that if the banks now outside the National system came into it as they certainly would, because of the very great advantages it would give them, they would have to increase their reserves at least 10 per cent upon their individual or commercial accounts, and 5 per cent upon their savings accounts. This they would do by simply exchanging their bank notes for gold coin and gold certificates, as they came in over the bank counter. The result would be an increase of our bank reserves to about $500,000,000, and of course a corresponding increase of our bank liabilities. No one would deny that this would be a sound banking proposition. For, our individual deposit liabilities, which are now $17,000,000,000, would be increased to only seventeen billion five hundred million dollars ($17,500,000,000), an increase of only 3 per cent, while our reserves, which now amount to about $1,600,000,000, would be increased by $500,000,000, or nearly 33 per cent.

Mr. Lawyer: I see, then, that you propose to increase the note issue about $500,000,000. This would give us a note issue of $1,250,000,000, and 2 per cent of this would be $25,000,000.

We had a chart here the other night and some figures, which showed that the increase and decrease of the bank note currency in Canada amounted to $3.80/100 per capita every fall, and that every year, for a number of years, so far as we have the record at least, exactly on the 15th day of October, it was always at its maximum. Since we are now taking back from Canada what Canada originally took from Massachusetts, the principle of a true bank credit currency, we might expect just what they had in New England, before the war, and what Canada now has every year, and every month of the year, and every day of the month. That is, we would have an amount of bank note currency just equal to the demands of trade; no more, no less, but always just what the business of the country requires, dollar for dollar, day in and day out. Am I correct?

Mr. Banker: You are absolutely correct. Our variation in the demands of currency would not differ very much from that of Canada. We might expect a difference between the maximum and minimum issue of about $350,000,000 a year, that is, it ought to range from about one billion dollars to about one billion three hundred and fifty million dollars during each year, as matters now stand.

Mr. Lawyer: Well, if that is true, we should never know one season of the year from another, so far as the demands of currency are concerned.

Mr. Banker: No, you never would; and the facilities gained by the banks for adjusting themselves to the changing conditions would enable them to be far more helpful to their customers than they now are, and yet be absolutely safe in doing so. You see, I would not limit a bank to an amount of currency equal to its capital; but subject to the approval of the Board of Control, where the bank was located, it could issue as much more, or a total of 200 per cent of its capital. That is twice as much as its capital; for, there are banks today situated a good deal as the New England banks were before the war, where the people would use more bank notes than deposits, if they were permitted to study their own convenience. This we would find to be true in the newer parts of the cotton growing country in cotton picking times. Can anyone tell why a bank, under such circumstances, should not meet the peculiar demands of its customers, and furnish bank notes at a cost of one-sixth of what it must be, if the bank is compelled, as it is today, to rediscount its promissory notes, and buy gold certificates or United States notes to be used as currency, when its own bank notes would answer every purpose of currency just as well?

Mr. Lawyer: Then I understand also from what you said upon another occasion that you would allow a bank to use a part of its reserves during those seasons of the year when the demand for money was particularly strong, and make up its average reserves when the demand was slight.

Mr. Banker: Precisely so. Why should not a bank act just like any other merchant or trader, and adjust its stock of goods to the ever-changing conditions of its business? Of course I am fully aware that there is one element entering into a bank's business that is not common to other mercantile houses, and that is the question of its credit. It must keep itself in such a position at all times as to preclude the chance of suspicion arising about its ability to meet its demand obligations. This point brings me squarely up to the matter of a central reserve.

A bank that is known to be under the supervision of a Board of Control, which can and ought to know its actual condition, and which has the power to compel it to so conduct its business, as to be entitled to consideration and accommodation, whenever it asks for it, and actually needs it, will certainly have the confidence of the public to an unbounded degree. Of course, I am assuming that the public are aware of the fact that the Board of Control in turn has access to the great central reserve of one billion two hundred and fifty million dollars ($1,250,000,000).

You can imagine that the public under such circumstances would have absolute confidence in a bank. Indeed, I am of the opinion that as soon as this organization is effected, bank failures would be a thing of the past, because the public would soon come to appreciate this, and look upon every bank in the system as safe beyond the peradventure of a doubt.

Mr. Farmer: There would be every reason for confidence in such an institution because of its great strength; and yet, if I understand your plan, as outlined, every one of these individual zones would be as independent of every other zone as if it were a foreign country. It would be like a great bank standing alone, of which every bank within the zone was an integral part, for the purpose of the defense of the credit of each. Then again, every individual bank would remain just as independent as it is today, while at the same time it enjoyed the full confidence which the larger institution would be naturally entitled to.

Mr. Banker: That is precisely the result this coöperative reserve fund of one billion two hundred and fifty million dollars ($1,250,000,000) would produce.

Mr. Lawyer: Then, as I understand it, beyond the individual independent bank, and beyond and behind the individual independent zone, would be "The American Reserve Bank," standing guard over the commercial interests of the whole United States, ready at any time to meet any possible contingency that might arise in any section of the country, with practically unlimited power to release, hold, or recall gold from the four quarters of the globe, because it can place a price upon the use of gold in the form of interest, and so conserve the general welfare of American commerce and American labor.

Mr. Banker: Now, gentlemen, let me call your attention to five important results we have achieved in the development of this outline of our proposed structure.

First: You will observe that every bank in the United States will be completely freed from every dominating influence, because in the last analysis it will have access to a practically inexhaustible hoard or reserve of gold, which belongs to itself as much as to any other bank.

Second: You will note that every commercial zone is a perfect and complete self-governing body. Not a single outside person has anything whatever to do with its affairs. Every person who is in any way connected with it, is selected by its members, even including the Deputy United States Comptroller, who will be, as you remember, the Chairman of the Board of Control, and President of the Bankers' Council. In principle and in function this organization is identical with that of the Bank of the State of Indiana, and of the State Bank of Iowa, in which you will remember the parent, or home institution, did no business whatever, except for the branches, which it examined and supervised.

Third: You will note that in the matter of issuing currency, it follows the principle of bank credit currency in operation today in Canada, with the added power, subject to the approval of the Board of Control, of doubling the issue to meet unusual demands of trade or in case of an emergency.

Fourth: You will observe that we have planned to reach ultimately a system of reserves consisting of gold, exclusively, and also to keep all bank credits, both deposits and note issues, in constant touch with gold by paying gold whenever called for.

Fifth: That in the matter of a strong central gold reserve, you will observe that the plan follows the principle in force at the Bank of England where all transactions are in gold, making England the only truly free market for gold in the world.

Gentlemen, I am convinced that it is the natural right and present opportunity of the United States to become the financial centre of the world; but no country can ever become the financial centre of the world, unless it is a free market for gold. No country can be a free market for gold, unless its entire credit system is based upon gold, and gold alone, thereby guaranteeing unquestioned bills of exchange. Such bills would draw a rate as low as the lowest because protected by a gold fund of such magnitude, when considered from the standpoint of its obligations to the commerce of the country, where held, all conditions being considered, as to insure beyond question its ability to take and give gold, as necessity requires in international trade, without endangering its stability, or affecting its credit.

This result can only be achieved by enforcing the discount rate throughout the country involved; and the discount rate can only be enforced throughout the country involved by buying and selling bills of exchange in straight gold transactions. We should not trade one bank credit for another bank credit, and put this bank credit into our bank reserves, as the Aldrich scheme proposed, thereby driving gold out of the banks, and out of the country, and also utterly destroying our power to control and protect the cash gold reserves of our banks, which outside of what may be called subsidiary money (from $2 pieces down), should ultimately and always be gold and gold alone.

In conclusion, I submit that the whole plan as we've worked it out does not introduce a single foreign element but creates out of our own practices, which have developed out of our own peculiar conditions, a financial and banking system, founded upon sound economic principles. It gradually eliminates those errors that have crept into our financial and banking practices, possibly through supposed necessity, but certainly through ignorance; and yet, the present incoherent conglomerate condition is brought to a simplicity and strength that may safely challenge any country in the world to institute a comparison for economy, efficiency, strength and safety.

Mr. Merchant: Gentlemen, if you will achieve the results that you have outlined in the course of this evening's talk, you will accomplish all and precisely what Mr. MacVeagh, Secretary of the Treasury, recently described as the ends that must be attained if we are to bring about a complete financial and banking reform. These are his words:

"A relief measure reforming the banking and currency system must include, among its necessary features, provisions for never-failing reserves and never-failing currency, and for the perfect elasticity and flexibility of both; for the permanent organization and organized coöperation of the banks, which are now suffering and causing the nation to suffer by reason of their unorganized state; for a central agency, to represent and act for the organized and coöperative banks—this agency to be securely free from political or trust control, but with the Government having adequate and intimate supervision of it; for independent banking units—so independent that no one bank can be owned, controlled, or shared in in any degree, directly or indirectly, by any other bank; for the equality of all banks, National or State, both as to standards and as to functions—so that every requirement made of a National bank must be complied with equally by a State bank, and every function or privilege enjoyed by a State bank shall be enjoyed by a National bank; for the utilization and the fluidity of bank assets; for the scientific development of exchanges—domestic and foreign; for foreign banking as an adjunct of our foreign commerce, and for taking the Treasury Department out of the banking business."

Mr. Farmer: Well, you have forgotten the thing that interests me more, generally speaking, than all else, and that is the Land Credit Bank, which we went into last Wednesday night. Of course you intend to include this when you prepare your bill.

Uncle Sam: You bet they will, for I think it's about time that the corn raiser, cotton planter and grain producer and all the rest of the toilers of the turf, should be getting their money at as low rates as anybody else on first-class security for a long period of time, and I am determined to give the farmers of the country the benefit of my good name to aid them in this matter.

Mr. Banker: Of course we had all agreed to that, and shall include it in the draft of the bill.

Mr. Manufacturer: Uncle Sam, I move that Mr. Banker, Mr. Lawyer, and Mr. Farmer be a committee of three to prepare a bill to be submitted to us next Wednesday evening.

Mr. Merchant: I second the motion.

Uncle Sam: It's a go.

Good Night.

SIXTEENTH NIGHT

DRAFT OF BILL

Uncle Sam: Well, boys, here we are ready for the report of the committee on legislation, I suppose you would call it. Are you ready to report now?

Mr. Farmer: Yes, Mr. Lawyer will make our report and speak for the committee.

Mr. Lawyer: Uncle Sam, your committee has been deeply impressed with the duty you have imposed upon it.

That the solution and settlement of our financial and banking problem is the most important economic question that has ever confronted the civilized world must be admitted by all who will take the trouble to investigate it and institute a comparison between our conditions and those of any other country at the time when it adopted its financial and banking system.

In 1803, when the Bank of France was established, the financial resources of France were without official record, but comparatively nominal.

In 1844, when the bank act under which the Bank of England is conducted was enacted, the banking resources of that country were probably in the neighborhood of $500,000,000. The total note issue of England, Scotland, and Ireland was less than $200,000,000; the public and private deposits in the Bank of England were less than $75,000,000; and the gold in the Bank of England was less than $75,000,000.

In 1873, when the Imperial Bank of Germany took its present form, industrial Germany was still slumbering; and the bank resources probably did not exceed $1,000,000,000. The capital of the incorporated banks was about $425,000,000, the notes were about $325,000,000, and the reserves held about $30,000,000.

The banking resources of the United States are today more than ($25,000,000,000) twenty-five thousand million dollars and our foreign trade more than ($4,000,000,000) four thousand million dollars. The question we are dealing with, therefore, is not only the most stupendous of its kind, but it must be considered both from a domestic and foreign point of view. It is from both these points of view that we have approached the preparation of this measure.

As I proceed to read the bill I shall make some comment by way of explanation in order that our purpose may be understood.

A bill to establish a complete Financial and Banking system for the United States of America.

Section 1. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That a complete financial and banking system for the United States of America shall be, and is hereby, created, organized, and established as follows:

First: The commercial zone. Second: The bankers' council. Third: The board of control. Fourth: The American Reserve Bank.

Section 2. That upon the passage of this Act the President of the United States shall appoint three persons, who, with the Secretary of the Treasury and the Comptroller of the Currency, shall proceed immediately to designate such cities in the United States, not less than twenty-eight in number and not to exceed forty-two in number, for the location of the financial centres of the commercial zones, numbering them consecutively as shall best accommodate and serve the business and banking interests of the United States.

Section 3. That within ninety days after the designation of the cities for the location of the financial centres of the commercial zones every national bank, with the approval of the five persons designated in section two of this Act, shall select one of the centres so designated as the place for its clearing house, and thereupon the Comptroller of the Currency shall notify all the national banks to meet at their respective financial centres on a given day and at a designated place for the purpose of organizing the several commercial zones, of which there shall not be less than twenty-eight nor more than forty-two in number.

Comment:—Referring to sections two and three I would urge upon your attention these points:

Geographical Considerations

Great Britain has only 120,000 square miles of territory. France has 204,000 and Germany 208,000 square miles. All Europe, outside of Russia, is only about half the size of the United States. It has 1,600,000 square miles, while we have 3,026,000 square miles. Including Russia, all Europe has only 3,600,000 square miles.

Extended as our territory is, our products are far more varied and more universally important to the human race than those of any other nation. They exceed in value $35,000,000,000 a year.

Local Interests

New England is essentially a manufacturing center of dry goods, wearing apparel, and metal wares. Pennsylvania is known the world over for its coal, iron, and oil industries. New Orleans is the market for cotton, sugar, and rice. Kansas City is the emporium for live stock and grain. Chicago, the greatest food market on earth, is fast coming to be one of the greatest manufacturing points in almost every line of industry. St. Paul and Minneapolis supply us with wheat and flour. The cities of the Rocky Mountains are growing in importance year by year, each one entitled to distinction for some particular industry. The development of the Pacific coast, from San Diego to Seattle, is challenging universal attention.

It is the opinion of your committee that it is highly important, indeed, absolutely essential, for the best interests of the people, industrially, commercially, socially, and politically, that each geographical zone of common business interests should have independent self-government in matters of banking, precisely as the several States have control of their local affairs.

At the same time, these commercial zones should be so harmonized and federated as to give to each the financial strength and power of all combined, precisely as every State is as strong and powerful politically as the Federal Government itself.

All the governments of Europe are traditionally monarchical and imperialistic. Their banking institutions not only all bear the insignia of their political origin, but also characteristically mark the times and conditions that gave them birth.

In England alone self-government found true expression in the selection of the board of directors of the Bank of England. The British Government has no relation to the management, either directly or indirectly. It neither appoints a single representative on the board, nor has any voice whatever in his selection.

Again, it is to be noted that the Englishman, ever tenaciously jealous of his rights, excluded from the board of directors all bankers. No banker has ever sat upon the board of directors of the Bank of England.

The French Empire of 1803 and the German Empire of 1873 are each reflected in the organization of the Bank of France and the Imperial Bank of Germany.

This Government was organized as a protest against royal rule and imperial power. It has been fighting the evils of centralization for more than a hundred years; and of nothing has it shown such persistent jealousy as the possible centralization of financial interests and the control of commercial credits.

Will it be said by some one who thinks only in the terms of the special interests that, notwithstanding this watchfulness and constant anxiety, great aggregations of capital in the business world have come practically to control the business situation; that our commerce is practically centralized now, and that our banking should be so, to make it the counterpart of the existing state of things?

Let us not assume that the problems of coördinated power and wealth have all been solved. Let us believe that the study of this modern mystery has just begun. Let us hope that if it is possible for us so to solve the financial and banking problem as to recognize the best traditions of the Republic and the highest aspirations of the American people, keeping steadily in view every economic law involved, we shall then save our beloved country from the tragic consequence of political controversies directly affecting our commercial credit and indirectly affecting every day's labor and every dollar of capital until the question is settled right.

We must not forget that every conceivable phase of the so-called "money question" has been the football of American politics from the organization of the First and the Second United States banks, down through the greenback madness, the silver craze and the gold standard fight. Not a single subject has aroused such intense bitterness as this one, excepting slavery alone.

Whoever, then, tries to solve this problem must recognize at every turn the origin of our political institutions, the genius of our people, and the peculiar characteristics of the American citizen or he will fail utterly in his undertaking.

Section 4. That each bank shall be entitled to one vote, which shall be cast by an officer of the bank who has been duly authorized by a vote of the board of directors thereof, such authorization to be evidenced in writing and under the seal of the bank. Each bank shall be identified in its zone by a number.

Comment:—It is our judgment that every bank should have equal power in organizing and consequently in controlling the respective zones; because we believe the business interests of the country will be better conserved thereby.

Section 5. That the association of all national banks clearing or redeeming their notes at each of the cities so designated shall be known as "The —— Commercial Zone."

Section 6. That all the national banks of each of the commercial zones so constituted and established shall organize themselves into "The —— Commercial Zone" by electing a chairman, a secretary, and a treasurer, who shall all hold office until the first Monday of the following May, and by proceeding in the following manner:

Section 7. That they shall take some point in the financial centre of their respective commercial zones, from which they shall draw seven radial lines, so cutting the territory as to divide the whole number of banks, as nearly as possible, into seven district groups, each district containing approximately the same number of banks, and may from time to time thereafter shift said radial line for the purpose of maintaining such equal subdivision of the banks.

Comment:—It is a matter of great importance that these districts shall be automatically and arbitrarily constituted, if possible; and this plan will accomplish it. By this method every part of every commercial zone will be represented by business men as well as bankers. Neither particular sections nor particular banks can have any direct advantage.

Section 8. That each subdivision of the commercial zone so created shall be known as a district, and they shall bear numbers respectively from one to seven, inclusive.

Section 9. That the board of the bankers' council shall be constituted as follows:

First: The bankers of each district of the respective zones, voting as prescribed in section four of this Act, shall elect a banker and a business man as members of said board.

Second: The term of office shall be seven years; but the terms of the members of the first board shall be for one, two, three, four, five, six and seven years, respectively; that is, the board shall arrange itself into seven groups, each being composed of one banker and one business man, and thereupon the seven groups shall determine by lot how long each group shall serve.

Third: The fourteen members of the board of the bankers' council of the respective zones shall then elect their president, who shall not be one of the fourteen so selected, but shall be a resident of one of the districts in their own zone. The term of service of the president of said board shall be left to the respective boards of the bankers' council in the several zones.

Section 10. That the services to be rendered by the bankers' council shall be advisory to the board of control whenever the board of control may call them in consultation, or an appeal is made to them from the action of the board of control by some citizen or citizens of their particular zone.

Section 11. That the members of the bankers' council shall receive no salary, but all expenses incurred by them severally incidental to such consultation and services shall be paid.

Comment:—The relation of the Bankers' Council is the same to the zone as the Clearing House Committee is to the Clearing House. It will be the supreme court of the zone. It has the last word upon all business questions growing out of banking in the zone, in case of appeal.

Section 12. That the president of the bankers' council shall be chairman of the board of control.

Section 13. That the president of the bankers' council shall be a deputy United States comptroller.

Section 14. That each of the deputy comptrollers of the currency shall from time to time furnish such information and make such reports to the Comptroller of the Currency as the board of directors of the American Reserve Bank shall prescribe: Provided, however, That the Comptroller of the Currency may ask for reports as now provided by law.

Section 15. That the board of control shall be constituted as follows:

First: The bankers of each district, excepting the district in which the chairman resides, voting as prescribed in section four of this Act, shall elect a banker who resides in their district as a member of the board of control.

Second: The term of office shall be seven years, but the terms of the members of the first board shall be for two, three, four, five, six and seven years, respectively, and the six members so elected shall determine by lot how long each shall serve.

Section 16. That before any member of a board of control enters upon the performance of his duties he shall sever all connection as officer or stockholder with every bank in his commercial zone, and he shall be ineligible to any position in any bank in his zone during the time for which he shall have been elected to serve.

Comment:—The Board of Control will be composed of a body of men who are younger than the Bankers' Council; but of the same high order. They will be men who have the undoubted confidence of the banking fraternity; men who are to win the prizes in the banking world. This position will be a sure stepping stone to the best positions; but it must not be used for that purpose, at least until each man has served out his time.

Section 17. That compensation of the members of the board of control shall be five thousand dollars per annum, payable monthly, including the chairman, except that the chairman may receive any salary in addition thereto that the bankers of his zone may determine to pay him: Provided, That such additional salary shall be assessed upon the capital and surplus of all the national banks in that zone.

Comment:—The President of the Bankers' Council, Chairman of the Board of Control, and Deputy United States Comptroller should all be represented by the same individual for these reasons:

First—The relation between the two bodies of men should be easy and constant for the best interests of the people. There should be no slow machinery to put into operation in case of necessity. Quickness and harmony will always be essential.

Second—The power of the United States Government should always be present to enforce orders.

Third—A man of the greatest ability obtainable should be secured to occupy this place; therefore his salary and length of service should be left open for arrangement with the Bankers' Council. This man ought to be the leading man in banking in his zone in point of character and wisdom.

Section 18. That the services to be rendered by the board of control shall be as follows:

First: Each board of control shall have supervision of all the national banks located in its zone.

Comment:—The expense and annoyance of bank examinations as they are carried on today would be reduced one-half and they would be worth ten times as much as they are today with the exception of those made by clearing house examiners.

Second: The boards of control shall have power to employ all the examiners and such other assistants as may be necessary to properly and efficiently supervise the banks under them, and such examiners, as far as possible, shall be paid stated salaries.

Third: Each board of control shall have power to purchase commercial paper or bills of exchange from the banks in its zone whenever they desire to build up their reserves by obtaining additional gold or for the purpose of crop moving or any special or extraordinary demand of trade: Provided, however, That all the paper so purchased by them shall bear the unqualified indorsement of some bank in their respective zone.

Comment:—Mr. Merchant: Now it seems to me as though that organization is as simple, direct and complete as it can possibly be. It makes every zone an absolutely independent banking democracy. No outside influence is permitted to interfere with the zone. It is certainly local self-government from top to bottom. The fact that anyone in the zone may appeal to the Bankers' Council for redress and that every district has two representatives upon that board, will insure fair consideration at the hands of the Board of Control.

Section 19. That in case of a bank failure in any commercial zone one of the members of the board of control in that zone shall be appointed the receiver thereof and shall not receive any additional compensation for the services rendered as such receiver.

Section 20. That the board of directors of the American Reserve Bank shall be constituted as follows:

First: The bankers' council of each commercial zone shall elect a member to the board of the American Reserve Bank. The commercial zones bearing the odd numbers shall elect bankers and the commercial zones bearing the even numbers shall elect business men, and every seven years thereafter the bankers' council of the respective zones shall alternately elect a banker or a business man, so that the elective members of the board of directors of the American Reserve Bank shall always be composed of an equal number of bankers and business men.

Second: The term of service shall be seven years; but the terms of service of the first elected board shall be for one, two, three, four, five, six, and seven years, respectively; that is, the board shall arrange itself into seven groups, each composed of two or more bankers and two or more business men, and thereupon the seven groups shall determine by lot how long each group shall serve.

Section 21. That it shall be the duty of the board of the American Reserve Bank, and it shall have the power, to fix the rate of interest or discount at which all the commercial paper or bills of exchange shall be purchased or discounted by all the boards of control.

Section 22. That it shall be the duty of the board of directors of the American Reserve Bank to issue a bulletin the latter part of each week, giving a statement showing a balance sheet of the American Reserve Bank and making such suggestions and comment and giving such advice as their wisdom may determine; and it shall make such arrangements as to insure the presence of this bulletin at practically every national bank in the United States every Monday morning.

Section 23. That the place of business of the American Reserve Bank shall be Washington, District of Columbia.

Section 24. That the members of the board of the American Reserve Bank shall reside in Washington, District of Columbia, and shall give their time and personal attention to the business of the bank.

Section 25. That the members of the board of the American Reserve Bank shall receive as compensation ten thousand dollars per annum each, payable in monthly installments.

Comment:—Each independent zone will send its own man to represent it in the board of the American Reserve Bank—so that every financial centre will have a spokesman to present its claims on the one hand and to give full and reliable information on the other; also to guide the whole board in its policy. The board shall give weekly advice to all the banks in the United States upon the condition of business at home and abroad. The American Reserve Bank, as we shall see, will hold all central reserves of the United States for the benefit and protection of each and all of the zones precisely as the zones must protect all the individual banks within their borders.

Since our gold reserves are now a part of the common reserves of the whole commercial world, the price for the use of gold must be under the control of the Board of Directors of the American Reserve Bank. In this capacity they are acting for every individual bank in the United States whose agent they are.

Section 26. That the board of directors of the American Reserve Bank shall elect as the president of the American Reserve Bank some one who is not a member of the board so constituted. They shall also elect a vice-president of said American Reserve Bank and such other officers as they may decide from time to time to be necessary to the best conduct of the business of said bank.

Comment:—Since the board of directors are the direct representatives of the respective zones, and since the American Reserve Bank is only the servant of the combined zones working in coöperation, it is clear, that the board should elect its own president and vice-president.

If there is one thing, more than any other, that should be kept out of this coöperative organization, it is politics. If the appointment should be the perquisite of the President of the United States it might be used as a bribe or a reward; such a thing should not be thought of. The policy of such an institution should be beyond the reach or influence of party politics.

Section 27. That the term of service of the president and vice-president of the American Reserve Bank shall be three years, and the salary of the president shall be twenty-five thousand dollars per annum, payable in monthly installments, and the salary of the vice-president shall be eighteen thousand dollars per annum, payable in monthly installments. The salaries of all the other officers or employees of said bank shall be fixed by the board of directors of said bank.

Comment:—The term of service should not be too long, for it would follow that a good officer would be retained, while a mistake could be corrected within a reasonable time. The salary should be sufficient to secure the ablest men that the country affords.

Section 28. That the Comptroller of the Currency shall ex officio be a member of the board of directors of the American Reserve Bank.

Section 29. That the Secretary of the Treasury of the United States shall ex officio be a member of the board of directors of the American Reserve Bank.

Comment:—Since the United States Government would carry its balances with the American Reserve Bank, the Government should be recognized by making the Secretary of the Treasury and the Comptroller of the Currency ex-officio members of the board.

Section 30. That the President of the United States, with the approval of the United States Senate, shall appoint three directors of the American Reserve Bank, who, for their first term, shall serve five, six, and seven years, respectively, and thereafter seven years, and each such director shall receive a salary of ten thousand dollars, payable in monthly installments.

Comment:—While it is true that the matter of management should be kept out of politics, it may be granted that it might be wise to have a small number of directors, appointed by the President of the United States, who would have only their respective votes in the deliberations of the board—but no official place. They might serve some good purpose at times; while they certainly could do no harm. The policy of the institution should not and would not be involved in these appointments.

Section 31. That vacancies in any one of the three boards as organized in this Act may occur by death, resignation, or expulsion, and shall occur whenever a member of any of the boards shall be a director or officer of a suspended, insolvent, or failed bank. All such vacancies shall be filled by the respective boards in which they occur until the first Monday in the month of May following, except those appointed by the President of the United States.

Section 32. That the term of office of each member of the three boards herein described shall begin at the time elected, but shall continue from the first Monday in the following May as if that day were the beginning of the time for which they were severally elected.

Section 33. That on the first Monday in May each year after one full year of service has expired the bankers of each commercial zone shall meet at the city in which the financial centre is located to fill any vacancies that may have occurred in any one of the boards described in this Act, and also to elect any members to said boards where terms of members have expired.

Section 34. That each commercial zone shall have all the attributes and powers of a body corporate and may sue and be sued in the United States courts having jurisdiction of the action brought; it may receive deposits from banks and act in every capacity of a bank for other banks, but shall not allow or pay any interest on such deposits; it shall have power to receive, collect, and forward bank notes; it shall have power to buy and sell commercial paper and bills of exchange from and to the banks which are members of such zone; it shall have power to act as the agent or attorney in fact of the banks which are members of any of the commercial zones, so far as it may be necessary to do so to carry into effect the purposes of this organization; it shall have the power to do and perform any and all acts that may be necessary for the proper performance of its duties in the supervision of all banks under it, and in the conduct and operation of the commercial zone.

Section 35. That each commercial zone shall maintain and keep in operation at its financial centre a clearing house where all the bank notes, checks, drafts, bills of exchange, and other instruments of credit, drawn upon any bank located in the zone, may be cleared, and for any other purpose that may come within the purview of this Act; and all such instruments of credit shall be accepted and settled for at par at such clearing house, under and in accordance with such rules and regulations as may be established from time to time by the board of directors of the American Reserve Bank.

Comment:—Mr. Manufacturer: You have now completed the functions of the zone, it seems to me; and everything that you have proposed is based upon the approved practices of the American Clearing House.

The free check zone, provided for in this last section, is identical with that at Boston, where, ever since 1899, every New England bank check has been at par at the centre.

Atlanta, Nashville, Kansas City and several other cities are working out the same plan. This plan is also identical with the plan that New England worked out before the war, with respect to the redemption of bank notes, when bank notes were the chief form of bank credit then used.

From 1818 to 1865, you will remember, the Suffolk Bank acted as a clearing house for all New England bank notes which were par at Boston, precisely as checks are today.

Here we are getting back to the simple fundamental principle of current redemption of bank credit without charge to commerce in whatever form the people may choose to use it.

It is bank notes and checks in France, Scotland, Ireland and all over Canada. Why should it not be bank notes and checks all over the United States just as well, in order that the people may have bank credit in the most convenient and cheapest form possible?

Then, you have extended to every commercial zone the same organization for supervision and administration that the most advanced clearing houses have; the Board of Control to examine them and the Bankers' Council as a court of appeal to settle all difficulties that may arise.

Mr. Merchant: Is it practical to have the zones conform to State lines?

Mr. Banker: Such a thing should not be thought of. Economic laws do not follow State lines. There is not a single State in the Union that is a natural economic zone. Some States should have several financial centres; some none. To attempt to make a commercial zone conform to State lines would be absurd. Bank credit flows to centres as water rushes to the ocean, and we should not violate a great economic law to the irreparable injury of commerce. Sense and not sentiment should control our action.

St. Louis and Kansas City are natural financial centres, but Jefferson City is not. St. Louis draws its bank credits from eastern Missouri, southeastern Iowa, northeastern Arkansas and southern Illinois.

Kansas City draws its bank credits from western Missouri, southwestern Iowa, southeastern Nebraska, all of Kansas and some of Oklahoma. These cities illustrate the principle that must not be violated or we may do more harm than good.

Vermont has no economic centre, and it would do violence to trade and commerce to make one arbitrarily.

Tennessee has three such centres. Indiana and several other States have but one.

Section 36. That the American Reserve Bank shall have all the attributes and powers of a body corporate and may sue and be sued in any United States court having jurisdiction of the action brought. It shall have power to buy and sell gold bullion and gold coin; to buy and sell United States Government securities; to loan money to the United States Government, and to act as banker, fiscal agent, representative and attorney in fact for the United States Government; to buy and sell bills of exchange, domestic and foreign; to act as fiscal agent, attorney in fact, for all members of the respective commercial zones, and shall have full power to carry into effect the object for which this organization is created; it may receive deposits from banks and act in every capacity of a bank for other banks, but shall not allow nor pay interest upon any deposits that may be made with it.

Section 37. That the board of directors of the American Reserve Bank shall define from time to time the nature and character of the promissory notes, checks, drafts, and bills of exchange that may be purchased by the respective zones and the length of time they may have to run: Provided, however, That every piece of paper purchased by any commercial zone shall bear the unqualified indorsement of some national bank in its zone.

Comment:—It would be unwise to fix now arbitrarily by statute just what kind of paper the banks of every zone should buy. This ought to be left to the board of the American Reserve Bank. They will meet it wisely as it arises.

Section 38. That the United States Government is hereby authorized and empowered to prepare, upon the passage of this Act, bank notes for the respective banks applying for them without the following superscription upon them: "This note is secured by bonds of the United States or other securities," but in all other respects like the bond-secured bank notes now in use: Provided, however, That the notes delivered to any bank for issue and circulation shall have in bold type, first, and to the left of the centre, the number of its zone, and, second, to the right of the centre, the number of the bank by which it is identified in its zone.

Comment:—This section provides a true bank note by erasing that barbaric superscription that makes our present bank notes a bond speculation; and by bold numbers identifies every bank note with a zone and with the bank issuing it, thereby greatly facilitating the quick redemption of the notes.

Mr. Merchant: How much more economical would this currency be than a currency furnished by the Government or purchased from some central bank or other central institution?

Mr. Banker: It would cost just one-fifth as much, or the difference between par that would have to be paid for the currency purchased and the average reserve carried; or about 20 per cent. The average per cent of gain to the banks would be about 5 per cent upon the amount of notes outstanding (approximately $1,250,000,000) or $60,000,000. Of course, this gain would come to the people, sooner or later; in the end, the expense of the bank is borne by commerce. The present enormous cost of shipping currency to and fro across the country would be saved also, and this amounts to several million dollars a year, to say nothing of the added trouble of shipping commercial paper with which to pay for it.

Section 39. That upon the completion of the organization of the several commercial zones as hereinbefore provided any national bank may retire all or any part of its present bond-secured note circulation by depositing with the United States Treasurer an amount of the present bond-secured notes or lawful money, or both, which shall be equal to the amount of its circulation so retired, and may thereupon, with the approval of the Comptroller of the Currency, take out for issue and circulation an amount of bank notes, which shall be known as "national bank notes," that does not exceed in amount its paid-up and unimpaired capital without depositing United States bonds or any other securities to secure the payment thereof as now provided by law: Provided, however, That before any national bank shall have the right to retire its present bond-secured circulation and take out national bank notes for circulation as in this section prescribed, it shall first, unless located in its financial centre, make arrangements with a national bank which is located in its financial centre for the redemption of its bank notes in gold coin or other lawful money: And provided further, That it shall first deposit in gold coin or gold coin certificates with the American Reserve Bank an amount of money equal to 7 per centum of its average deposits during the preceding calendar six months, and in addition thereto an amount equal to 7 per centum of the national bank notes it proposes to take out for issue and circulation.

Comment:—The amount of notes is limited to the amount of capital as a matter of convenience only. Some banks will not be able to keep out 25 per cent of their circulation, because their customers use checks; other banks will need at certain times of the year in some sections of the United States an amount of circulation largely in excess of the amount of their capital. The habits of the people will always determine what the amount of currency in use is, if permitted to choose between checks and notes; but crop-moving times will greatly increase the normal demand, as we have seen in the case of Canada.

Section 40. That thereafter every national bank shall have upon deposit upon the tenth days of January and July of each year with the American Reserve Bank an amount of gold coin equal to 7 per centum of its average deposits during the preceding calendar six months and 7 per centum of its national bank notes taken out for issue and circulation: Provided, however, That this reserve shall be increased at the rate of 1 per centum each year for a period of three years thereafter; and that thereupon and thereafter every national bank shall have upon deposit upon the tenth days of January and July of each year with the American Reserve Bank an amount of gold coin equal to 10 per centum of its average deposits during the preceding calendar six months and 10 per centum of its national bank notes taken out for issue and circulation.

Section 41. That every national bank shall carry a cash reserve of 6 per centum of all of its individual deposits subject to check up to six million dollars and one-half of 1 per centum additional for each five hundred thousand dollars up to ten million dollars, and upon this and all additional individual deposits a reserve of 10 per centum in cash.

Section 42. That every national bank shall carry a cash reserve of 20 per centum of its deposits from banks, or upon its bank balances.

Comment:—There is no doubt whatever that banks should carry larger cash reserves against bank balances than against those of individuals. The banks of Europe which carry such balances carry all the way from 33 per cent up to 50 per cent.

Section 43. That any national bank may at any time fall 75 per centum below its required cash reserve: Provided, however, That its average cash reserve from January 1st to December 31st shall be equal to its required cash reserve.

Section 44. That the amount that any national bank located outside of a financial centre shall be required to carry with a national bank located in a financial centre for the purpose of redeeming its notes may be counted as a part of its required cash reserve.

Section 45. That any national bank desiring to build up its reserve may rediscount or sell any of the commercial paper or bills of exchange owned by it by applying to the board of control of the commercial zone in which it is located.

Section 46. That if any national bank shall not maintain its required average cash reserve, as prescribed by this Act, it shall pay at the end of the year as a penalty therefor, 10 per centum upon all loans in excess of such required cash reserve; and such penalty so paid shall be paid without any reference to any rediscounts made with the board of control for gold: Provided, however, That the board of directors of the American Reserve Bank may at any time suspend the whole or any part of said 10 per centum penalty that may result from a demand for gold during a panic, crop-moving period, or any unusual or extraordinary condition.

Section 47. That any national bank desiring to take out for issue and circulation an amount of national bank notes in excess of its paid-up and unimpaired capital, without depositing United States bonds or any other securities to secure the payment thereof, may do so to an amount not to exceed 100 per centum of its paid-up and unimpaired capital stock, provided the board of control of the commercial zone to which such bank belongs first gives its approval thereto.

Section 48. That the United States Government shall print and place in the hands of the respective boards of control an amount of national bank notes for each national bank in its zone equal to the paid-up capital thereof in addition to the bank notes taken out in accordance with Section 30.

Comment:—You will observe, gentlemen, that by Section 43 a bank is allowed to fall 75 per cent below its average cash reserve; that by Section 45 it can buy gold from the Board of Control with its commercial paper and build up the reserve; also that by Section 47 it can take out an additional amount of currency to meet any emergency that may arise. Now, when you appreciate the fact that the Board of Control is going to make every bank qualify in the outset, as sound and then is virtually responsible for its condition, with the power to aid it in case of necessity, it is difficult to even imagine a case where a bank would fail.

Mr. Merchant: That is so; every bank ought to be kept in liquid shape by the Board of Control; then its means of defense, as you have just pointed out, are unlimited. Of course it would then have all its present resources by way of rediscounting paper with its city correspondent; and on top of that the provisions of your bill. You could not possibly bust a bank.

Section 49. That national bank notes shall be a first lien upon all the assets of the bank issuing them, including the double liability of the stockholders, and any person or bank holding any of the national bank notes of a failed bank shall be entitled to recoup the amount thereof out of the first moneys received on account of the failed bank.

Comment:—These credit notes should be a first lien precisely as our present bank notes are; as the Scotch notes are and as the Canadian notes are. Bank notes should be made a first lien, because they are a public convenience and because the holder is morally and practically compelled to take them in the ordinary course of business.

Mr. Manufacturer: He could refuse if he chose and demand legal tender, could he not?

Mr. Lawyer: Certainly, but public policy should put the goodness of bank notes beyond question under all circumstances.

Section 50. That the expense of transmitting national bank notes by a bank to its financial centre, except its own bank notes, shall be paid by the board of control of the commercial zone in which such financial centre is located.

Section 51. That the expense of transmitting national bank notes from a financial centre outside of the zone to which they belong to the financial centre to which they belong shall be paid by the bank issuing the national bank notes so returned.

Comment:—It will not cost bankers anything to forward notes for redemption, as the expense of transportation will be paid by the commercial zones. This fact will insure the immediate return of all notes for redemption.

Section 52. That the national bank notes issued in accordance with the provisions of this Act shall be received at par in all parts of the United States in payment of taxes, excises, public lands, and all other dues to the United States, including duties on imports, and also for all salaries and other debts and demands owing by the United States to individuals, corporations, and associations within the United States, except interest on the public debt and in redemption of the national currency. Said notes shall be received upon deposit and for all purposes of debt and liability by every national banking association at par and without charge of whatsoever kind.

Section 53. That from and after the passage of this Act no bank shall receive or have on hand deposits exceeding in amount ten times the amount of its paid-up and unimpaired capital.

Comment:—Capital is a sort of insurance fund precisely as reserves are, and there should always be a reasonable relation sustained between capital and deposits.

Section 54. That any national bank may, with the approval of the board of control, establish a branch bank in any town, village, or locality within its own zone and within a radius of twenty miles, where there is no national bank; but such branch bank shall be discontinued as soon as an incorporated bank is established at that point with a capital of at least ten thousand dollars.

Section 55. That whenever any body of men desire to establish a national bank, or to nationalize a private bank, State bank, or trust company, they must first secure the approval of the board of control of the commercial zone in which the proposed bank is to be located; and if such application shall not be approved by the board of control for any reason, the applicant or applicants may then appeal to the board of the bankers' council for approval.

Section 56. That the decision of the board of the bankers' council upon all appeals by applicants for the privilege of starting a national bank shall be final, and their decision shall also be final in all other matters in which appeals may be made from the board of control.

Section 57. That all the rules and regulations under which branches are carried on shall be fixed and established by the board of directors of the American Reserve Bank.

Section 58. That any national bank which has taken out national bank notes for issue and circulation in accordance with this Act shall pay the American Reserve Bank on the tenth days of January and July of each year 1 per centum upon the average amount of notes in actual circulation during the preceding six months.

Comment:—The tax is placed at 2 per cent per annum because that is the usual rate of interest now allowed on good balances all over the United States, and the notes are only another form of deposits made by the public who carry or use the notes.

Section 59. That the tax so paid by the banks upon the national bank notes, as provided in Section 58 of this Act, shall be appropriated for the following uses and purposes:

First: To pay all the expenses of whatsoever kind growing out of the administration of the four organizations established by this Act.

Second: To pay 1 per centum per annum upon all the United States 2 per centum bonds or consuls until their maturity in nineteen hundred and thirty.

Third: To establish and maintain in the American Reserve Bank a bank note redemption fund equal to 5 per centum of the average amount of the notes outstanding each six months preceding the first days of January and July of each year for the purpose of redeeming the notes of failed banks.

Fourth: The balance remaining, if any, shall, on the tenth day of January in each year, be paid into the division of the reserve fund of the United States Treasury in gold coin for the purpose of converting the United States notes into gold certificates.

Section 60. That to any national bank which has complied with section thirty-nine of this Act the United States Government shall return the 5 per centum fund deposited with it for the purpose of redeeming its bond-secured bank notes.

Section 61. That any national bank desiring to wind up its affairs and go out of business shall be entitled to receive back all its advances made upon its deposits and note issue to the American Reserve Bank: Provided, however, That all the liabilities of such bank have been paid in full and satisfied, or any amount of lawful money equal thereto has been paid into the American Reserve Bank for that purpose, and the Comptroller of the Currency approves the repayment of said sum.

Section 62. That from and after the first day of January, nineteen hundred and fourteen, no national bank shall pay out over its counter any bond-secured bank note, but shall send the same to its financial centre, and the financial centre shall forward it to the United States Treasurer for redemption, cancelation and destruction.

Section 63. That any national bank that shall count any national bank note or notes as a part of its reserve shall pay into the American Reserve Bank a penalty of 10 per centum per diem on the amount so counted, and any national bank that shall, after January first, nineteen hundred and fourteen, count any bond-secured bank note as a part of its reserve shall pay into the American Reserve Bank a penalty of 10 per centum per diem upon the amount so counted.

Comment:—If there is one evil that should be crushed out in this country more than any other it is the practice of carrying debts as reserves. No bank should be allowed to carry any other bank's notes, any more than any other check or draft which it thinks is good. It has been this abuse of bank credit that has led to more trouble than almost any other single thing. It was the requirement of coin reserves and current coin redemption that made the banks of Virginia, Louisiana, Kentucky, Ohio, Indiana, Iowa, Missouri and the Suffolk System such perfect successes.

Here is the crux. The very soul of sound banking is current coin redemption. So let us not fool ourselves by putting wind and water into our reserves.

Section 64. That any national bank may and is hereby authorized to accept any note, check, draft, or bill of exchange, with not more than four months to run, for any one of its regular customers: Provided, however, That the instrument of credit so accepted shall be for goods or merchandise sold and actually delivered or in transit to the buyer: And provided also, That the instrument of credit states this fact upon its face: And provided further, That the bank so accepting any such instrument of credit shall keep and maintain against such acceptance identically the same reserve as it is required to keep and maintain against a deposit subject to check, and it shall be subject to the same penalty as provided in section forty-six of this Act.

Comment:—Let us not fool ourselves by supposing that by creating liabilities we are actually creating new capital. By acceptances a class of paper will undoubtedly be created that will in turn create a market for itself. The object therefore of acceptances should be to facilitate the handling of commodities in transit.

Section 65. That any national bank having a paid-up capital and surplus of at least two million dollars may establish a branch in any foreign country with the consent and approval of the board of directors of the American Reserve Bank.

Comment:—If we hope for our share of profit upon our foreign trade and if we hope to secure for the American merchant an equal opportunity in securing that foreign trade, we must prepare here two aids: one is banking facilities and the other is shipping facilities. Is it not perfectly clear that a foreign banker would do anything in his power to divert all the traffic he could over the shipping lines of his country? We shall find in the end then that our foreign trade will be aided not by our foreign bank alone but by American shipping as well.

Section 66. That any national bank that has a paid-up capital of at least fifty thousand dollars, and the surplus required by law, may act as a guardian, administrator, executor, or trustee and in such capacity in any State, by whatever name known, in accordance with the laws of the State or Territory where situated or located, and the reserves required against trust funds shall be as follows:

First: Seven per centum thereof shall be deposited with the American Reserve Bank.

Second: Six per centum cash shall be carried against all trust funds up to six million dollars and one-half of 1 per centum for each additional five hundred thousand dollars up to ten million dollars, and upon this amount and all additional amounts, 10 per centum in cash shall be carried, but any national bank accepting trust accounts shall keep the same separate and apart from all other accounts in said bank, and shall establish a trust account department; and all such deposits shall be invested in such securities as are prescribed by the laws of the State where such bank is located.

Section 67. That if the laws of the State where any national bank accepting trust accounts is located do not prescribe how trust funds shall be invested, then the board of the American Reserve Bank shall fix rules and regulations for the investment of such funds.

Section 68. That any national bank may accept savings accounts, as distinguished from commercial accounts, but any national bank accepting savings accounts shall keep the same separate and apart from all other accounts in said bank, and shall establish a savings account department; and all such savings deposits shall be invested in such securities as are prescribed by the laws of the State where such bank is located.

Section 69. That if the laws of the State where any national bank accepting savings accounts is located do not prescribe how savings funds shall be invested, then the board of the American Reserve Bank shall fix laws and regulations for the investment of such funds.

Section 70. That all investments made for the benefit of the savings depositors of any national bank shall be held primarily and exclusively for the benefit of the depositors in the savings department; and in case of a bank failure, if the investments made for the benefit of the depositors in the savings department do not satisfy their claims in full, then the depositors of the savings bank shall be entitled to such a part of the capital, surplus, and capital liability as the savings deposits bear to all other deposits up to and until the savings accounts are paid in full.

Section 71. That any national bank accepting savings accounts shall, on the tenth days of January and July of each year, have with the American Reserve Bank an amount in gold coin equal to 5 per centum of the average deposit in such department during the preceding six months, and such national bank shall be required to carry cash reserves amounting to 5 per centum against such savings account.

Section 72. That the said 5 per centum so paid by the national banks to the American Reserve Bank as reserves against their savings deposits shall be invested in United States Government bonds or securities for the exclusive benefit of the savings depositors in the national banks as a savings bank fund, and the full interest earned upon said bonds shall be credited to the savings bank fund in the American Reserve Bank, and no part thereof shall be deducted for any other purpose whatsoever than the protection of savings bank depositors.

Comment:—This trust fund would absorb about $350,000,000 of the present bonds held by the national banks for circulation, as the total savings now approximate seven billion dollars ($7,000,000,000).

Section 73. That any national bank accepting a savings bank account may at any time demand the right to have thirty days' notice of an intention to withdraw the same, and may also reserve the right to pay all savings accounts in two installments—50 per centum thereof in three months, 50 per centum in six months.

Section 74. That from and after the first day of January, nineteen hundred and fourteen, every person, firm, partnership, or corporation using the word banker or bank, and every State bank and trust company in the United States receiving deposits subject to check, or saving accounts in the usual way, or trust funds shall keep and maintain identically the same reserves against these respective funds as is provided for by the provisions of this Act; and any person, firm, partnership, or corporation using the word banker or bank, and every State bank and trust company, except mutual savings banks, that fails to comply with the provisions of this Act shall pay a tax of 10 per centum to the United States Government on the tenth day of January in each year upon all the deposits or trust funds against which the foregoing prescribed reserves have not been kept and maintained.

Section 75. That any person, firm, or corporation using the word banker or bank, and every State bank or trust company that shall, after January first, nineteen hundred and fourteen, hold as a part of its required reserves, as prescribed in section sixty-three, any national bank note, check, draft, or other instrument of credit, shall pay a tax thereon to the United States of 10 per centum per diem on the amount so held; and every person, firm, or corporation using the word banker or bank, and every State bank or trust company accepting deposits or trust funds as described in section sixty-three shall, upon the first day of January in each year, make a sworn statement to the United States Government showing exactly the amount and the character of reserves held during the preceding year against all of its deposits, and upon failure to do so shall pay a fine of one thousand dollars per day until such report is made.

Comment:—These Sections, 74 and 75, provide that every person or corporation in the United States shall not only carry its proper share of reserves, as we have all agreed they should, but the right kind of reserves as well. Quantity and quality must both be made obligatory if we are to have a banking system that amounts to anything.

Section 76. That as soon as the amount of money deposited by the national banks with the American Reserve Bank, as aforesaid, shall reach the sum of five hundred million dollars all the bonds now deposited by national banks to secure Government deposits shall be returned to the respective banks to which they belong; and from and after that date any national bank holding a Government deposit shall pay interest thereon to the Treasurer of the United States at the rate of 2 per centum per annum, and the said interest so received shall be paid into the division of reserve fund in the Treasury, and United States notes of an equal amount shall be retired, canceled, and destroyed and gold certificates issued therefor. The said interest shall be payable as follows: 1 per centum on the tenth days of January and July of each year on the average balance during the preceding six months.

Section 77. That all the profits growing out of the operations of the several commercial zones and the American Reserve Bank combined may be distributed between the United States Government and all the national banks pro rata, according to the amount they have respectively deposited with the American Reserve Bank, whenever in the judgment of the board of the American Reserve Bank it is advisable to do so, having made such provision for a reserve as is deemed necessary: Provided, however, That the distribution of profits shall not exceed 2 per centum per annum until practically all of the United States notes have been converted into gold certificates; and for that purpose all the profits in excess of 2 per centum shall be paid into the reserve fund of the United States Treasury in gold coin.

Section 78. That subject to the disposition made and provided for in this Act of all the various sums of money to be paid to the American Reserve Bank all such sums of money shall be combined and held in one common fund and be known as the American Reserve Bank Fund, and this fund shall guarantee the repayment of all Government deposits made with the American Reserve Bank and the redemption of the national bank notes of any failed bank.

Comment:—In paragraph three, under Section 59, provision was made for a 5 per cent guarantee fund to redeem the bank notes of any bank which has failed. This fund is held by the American Reserve Bank, which under Section 78 will be used to redeem the notes of all failed banks immediately and the amount of the notes so redeemed shall be recouped from the assets of the bank that issued the notes; if, by chance, one should fail after it has become a part of the proposed system, which I, for one, do not believe is possible.

Section 79. That the American Reserve Bank shall, on the first days of January and July of each year during the life of the 2 per centum United States consols up to nineteen hundred and thirty, pay into the Treasury of the United States an amount of cash in equal payments which shall be equal to 1 per centum per annum of all the United States 2 per centum bonds or consols now aggregating about seven hundred and thirty million dollars.

Section 80. That when the American Reserve Bank shall have paid into the United States Treasury the first half of 1 per centum in accordance with the preceding section, the United States Government shall thereupon refund all of the 2 per centum bonds or consols into 3 per centum bonds or agree to pay 3 per centum thereon; and thereafter the Government shall pay 3 per centum interest upon all of said 2 per centum consols.

Comment:—By this section all the 2 per cent bonds will be converted into 3 per cent bonds and they will then be returned to the banks to which they belong. They can then be sold by them, bringing into the commercial fund of the country $730,000,000.

This change ought to enable the banks to loan money more cheaply to the people; we must remember that the more expensive we make banking in this country the higher the rates of interest will be; for, in the end, the people bear every added burden.

Section 81. That when the United States Government shall have made provision for refunding the 2 per centum bonds or consols into 3 per centum bonds and the American Reserve Bank Fund shall amount to the sum of five hundred million dollars, the United States Treasury shall transfer to and keep with the American Reserve Bank a sufficient balance—upward of fifty million dollars—to meet all of its checks and drafts; and thereupon the American Reserve Bank shall become the fiscal agent of the United States Government for all purposes, except for the collection and current daily deposits of its revenues, which shall not be deposited thereafter in the United States Treasury or Sub-treasuries.

Section 82. That from and after the date that said American Reserve Bank Fund shall amount to the sum of one thousand million dollars the Secretary of the Treasury of the United States shall deposit from day to day all Government receipts from whatsoever source received in the American Reserve Bank.

Comment:—According to these two Sections, 81 and 82, the United States Treasury will cease to be a disturbing factor in the commerce of the country; and it will do its business, precisely, as any municipality, by check and draft upon the American Reserve Bank, where its money will be deposited, from day to day, currently, as received.

Section 83. That beginning on the first day of January after the "American Reserve Bank Fund" shall amount to one thousand million dollars, every National bank shall pay to the American Reserve Bank a tax of one-fifth of 1 per cent upon all of its deposits held upon said first day of January, and upon the first day of January thereafter for two successive years a tax of one-fifth of 1 per cent upon the amount of deposits held.

Section 84. Every National bank shall thereafter contribute a sufficient amount on the first day of January in each year to make the total amount that it has contributed equal to three-fifths of 1 per cent of its deposits.

Section 85. The fund so created by the payment of the said three-fifths of 1 per cent to the American Reserve Bank shall constitute and be known as "The Depositors' Insurance Fund."

Section 86. Any bank that shall come into the National banking system at any time after the passage of this act shall immediately proceed to make its contribution to "The Depositors' Insurance Fund" as prescribed in sections eighty-three and eighty-four of this Act.

Section 87. If any National bank shall fail after three years from the time that the first tax upon deposits was paid, all depositors shall be paid in full, as hereinafter provided, as soon as the amount due them respectively has been ascertained.

Section 88. The Board of Control of the commercial zone where the failed bank is located shall issue in the name of its commercial zone perpetual securities subject to call equal in amount to the amount of the deposits held by the failed bank. The securities so issued shall be in the denomination of five hundred dollars and multiples thereof, and be known as Bank Bonds of —— Commercial Zone, and shall bear interest at the rate of 6 per cent per annum, payable annually.

Section 89. The Board of Control issuing Bank Bonds as in the foregoing section prescribed, may deposit an amount thereof with the American Reserve Bank equal to all deposits less than five hundred dollars and all fractions of deposits less than five hundred dollars, and receive in exchange therefor, an equal amount of money.

Section 90. The Board of Control may at its option sell the Bank Bonds so issued, and pay the depositors in cash in full or may pay the depositors in cash in part and in Bank Bonds in part.

Section 91. From time to time as cash is realized from the assets of the failed bank the Board of Control shall retire a corresponding amount of Bank Bonds, the bonds so retired to be determined by lot.

Section 92. As soon as the loss resulting from the failure of the bank is determined, the Board of Control shall proceed to assess a tax at the rate of one-fifth of 1 per cent per annum upon all the deposits of all the National banks in the commercial zone where the failed bank was located until one-half of such loss has been collected from such banks. The remaining one-half shall be borne by "The Depositors' Insurance Fund."

Comment:—Since the commercial zone where the failed bank is located is directly responsible for the failure because its board of control could have prevented it, that particular zone should bear at least half the loss. This is essential to impress upon all the bankers of the zone the importance of selecting the very best men upon the board of control.

Section 93. The board of directors of the American Reserve Bank may invest such part of "The Depositors' Insurance Fund" in United States Government securities as they may deem wise.

Section 94. If at any time in the future the board of directors of the American Reserve Bank shall find it necessary to reimpose upon all the deposits of the National banks the tax of one-fifth of 1 per cent to carry this act into effect, they are hereby authorized and empowered to do so.

Section 95. If the board of directors of the American Reserve Bank shall at any time deem "The Depositors' Insurance Fund" unnecessarily large, it may distribute a portion of the same among the banks as their interests may appear.

Comment:—Mr. Lawyer: Gentlemen, by Sections 83 to 95 we have provided for the insurance of depositors, as you will perceive. We have accomplished this by financing, as it were, the assets of the failed banks so that all depositors can have their money immediately. We believe that the result of this plan will be not only to absolutely protect all depositors and give them their money immediately; but, to save the depositors from a world of worry; to protect the banks from panics and runs; to stop hoarding; to protect storekeepers, merchants, manufacturers and all business interests from the consequences of the inability of the people to meet their obligations because their money or cash resources are tied up in bank failures as heretofore. Our problem was to meet the condition confronting a community when a bank closed its doors, and I think we have solved it.

Mr. Banker: There can be no possible question but what this plan, which will put into the American Reserve Bank at least $35,000,000 before it becomes operative, will accomplish the purpose sought, since the total loss to all depositors in the National banks in forty-nine years have been only $38,000,000, and the estimated loss where the failed banks have not been closed out is only $6,000,000, or a total loss for the whole time of only $44,000,000.

Mr. Merchant: You have undoubtedly solved every difficulty connected with this great and most benevolent purpose.

Mr. Laboringman: Gentlemen, I want to thank you from the bottom of my heart for what you have just done. I want to thank you in the name of the millions of toilers. If I have had any influence in bringing this great reform about, I feel that I have been repaid a thousandfold for the time I have spent with you.

Mr. Lawyer: To you, Mr. Laboringman, more than to all the rest of us, is due the insurance of depositors in our National banks; for you may rest assured now that it will come about sooner or later. Of course, that letter to Mr. Farmer from the Comptroller of the Currency paralyzed all opposition, and to you two men belongs the glory of this victory; to you two men will be due the gratitude of all depositors.

Section 96. That whenever the accumulations from the tax upon the national bank notes shall reach an amount equal to 5 per centum of the national bank notes outstanding during the preceding six months after paying all the expenses growing out of the administration of the four organizations established by this Act—the commercial zone, the bankers' council, the boards of control, the American Reserve Bank—and the 1 per centum per annum upon all the 2 per centum bonds or consols is being currently paid, the excess from whatever source remaining over, allowing for such a reserve as is deemed necessary, shall, on each succeeding tenth days of January and July in each year, be paid into the division of the Reserve Fund of the United States Treasury in gold coin; and as soon as the Secretary of the Treasury shall receive and cancel an amount of United States notes equal to the gold so paid in, he shall issue gold certificates therefor.

Section 97. That when the Secretary of the Treasury of the United States shall have received from the interest paid by the banks upon the Government deposits, and from all other sources, the sum of one hundred and ninety-six million six hundred and eighty-one thousand and sixteen dollars in gold coin for the purpose of redeeming and converting a like amount of the United States notes into gold certificates, and he shall have received, canceled and destroyed substantially all of the remaining United States notes outstanding, making due allowance for the United States notes estimated to be lost or destroyed, he shall then transfer all the gold coin and gold bullion in the Reserve Fund, amounting to one hundred and fifty million dollars, with all the accumulations, to the division of redemption of the trust fund; and thereafter no national bank shall hold a United States note as a part of its reserve, nor shall there be paid out of the United States Treasury any United States notes; but the same when received shall be canceled and destroyed, and gold certificates shall be issued therefor.

Comment:—You will have noted in Sections 77 and 96, also in Section 97, that provision has been made for paying gold into the Reserve Fund, which is the fund behind the Greenbacks or United States notes, and that a corresponding amount of greenbacks are to be canceled and the same amount of gold certificates are to be issued in their place.

The amount of greenbacks is $346,681,016. The present amount of the Reserve Fund is $150,000,000. Now after we have paid into this fund $196,681,016, the greenbacks will be converted into gold certificates. We estimate that this will take twelve to fifteen years.

Then all our bank reserves will, practically, be in gold coin or gold certificates, because the silver certificates will be cut up into one and two dollar pieces and will be token money, in the pockets of the people, the tills of the stores and will constitute small cash for the banks.

Uncle Sam: Glory Halleluiah! That will be the day I long have sought and mourned because I found it not! Boys, your work will be a great relief to me.

Section 98. That when substantially all the United States notes shall have been converted into gold certificates, as in this Act provided; when practically all of the bank notes secured by Government bonds have been returned to the United States Treasury and canceled; and when practically all the silver certificates of the larger denominations have been cut up into one and two dollar certificates or coined into subsidiary coins; and when the American Reserve Bank shall be acting as the fiscal agent of the United States Government, it shall thereupon assume the maintenance of the parity of the silver certificates and silver coins with gold coin.

Comment:—Uncle Sam may well rejoice because this section, you will observe, provides that the American Reserve Bank shall then maintain the parity of all his silver with his gold.

Mr. Merchant: Gentlemen, have you estimated how much gold your plan would bring into the American Reserve Bank?

Mr. Banker: Yes, sir; we should have approximately one thousand two hundred and fifty million dollars ($1,250,000,000).

Mr. Merchant: Where would this gold come from?

Mr. Banker: Partly from what the banks now hold, and partly from the channels of trade. There is about $900,000,000 now in the banks and $978,000,000 in the channels of trade, or $1,878,000,000 in the United States. The present dead reserves, I mean dead reserves held by the banks under a legal prohibition against their use, and the gold floating around in the cotton fields, corn and wheat fields, in the mining camps, in the stores, and in the pockets of the people generally, would at once be brought to their proper use, vitalized, and mobilized into a common defense of the bank credit of the country; all of it, ready all the time, to meet the demands of commerce, and to protect every bank in a liberal and wise use of its credit.