Benjamin Strong Jr. to Elihu Root
Title
Benjamin Strong Jr. to Elihu Root
Creator
Strong, Benjamin, 1872-1928
Identifier
WWP18428
Date
1913 December 13
Description
Benjamin Strong Jr. writes Elihu Root regarding cash reserves in the United States.
Source
Benjamin Strong Jr. Papers, New York Federal Reserve Bank
Language
English
Text
My dear Senator:
Last evening I did not leave with you the report of the Comptroller which gave the percentages of reserves of the banks in New York and other parts of the country, as I felt that I could make a stronger presentation by preparing some computations from the figures based on actual cash. Take pleasure in enclosing herewith copies of such abstracts.In explanation would say that I first figured the exact amount in cash that central reserve city, reserve city, and country banks (by States) were required to keep in their own vaults under the law, based on their deposits, as shown in the Comptroller’s report at the close of business December 3, 1907. I then took the actual cash that all such banks held in their vaults. The results show that, while New York City banks were under their reserve to amount exceeding $25,000,000., the reserve cities as a whole were over their reserve, even though a few of them showed a shortage, and that the State banks in every State and Territory in the United States, outside of Alaska, showed an excess of cash required of 76%, or $113,840,000. These country banks could have carried an average excess reserve over requirements of 54%, and then have divided the rest up among the three central reserve cities of New York, Chicago and St. Louis, which would have resulted in making up their entire deficit of $32,000,000.
Instead, therefore, of the so-called “big interests”, and particularly the New York bankers, having brought on or purposely caused the panic, as has been so kindly suggested by variojus members of Congress, these figures show the whole trouble to have been due to actual hoarding of money by country banks in all parts of the United sStates, particularly in the West and South.
You will notice, in the enclosed tables, that many of the banks in the Southern and Western states carried over 100% more cash in their vaults than the law required. The banks in Georgia heold 187% more cash than was necessary; in Alabama 169%, in Texas 145%, in Colorado 164%, in Oregojn 159%. These figures clearly show that, while New York was making every effort to protect the rest of the country and live up to its position as a central reserve city, the country banks were all taking more than their share; and, further, that they could have carried an average excess cash reserve iof over 50% and still have left enough funds for the central reserve cities to do business without friction.
It would seem to me that it is due New York City to have these figures read into the record of the United States Senate, after all of the false statements that have been made since the panic in regard to its position. Should you desire to obatain a copy of the Comptroller’s report from which these figures were taken, you can get one from the Treasury Department. The document is No. 56, and is dated December 23, 1907, signed William B. Ridgely, Comptroller.
Referring to another portion of our conversation last evening which had reference to the sale of our stocks and bonds that are held abroad, would say that if there were not a single loan on stocks in this country, the offering of such securities upon the New York Stock Exchange, combined with the refusal to purchase and the consequent dropping of rates and prices that would occur, would mean fearful losses to the people of this country. It seems to be human nature and is the actual practice of thousands and thousands of individuals who own stocks outright, to get frightened and sell them when the market goes down. If there were not men who had enough confidence in the institutions of the United States to purchase stock offered on the stock market at some rate, how could it be expected that the people would have any faith in what they hold? Again, there is another class of people, including many, many thousands in this country, who are always ready to buy stocks and bonds when rates get low enough to make the investment good. If foreign held stocks and bonds were offered upon the New York Stock Exchange, and the market were allowed to drop until the investment represented 7%, 8%, 9% and 10% interest, this class of people would begin to purchase, and their purchases would be just as effective, as far as sending gold out of the country is concerned, as if the purchases were made by men connected with some of the large institutions who might wish to protect their stock from raids and endeavor to hold the market up through purchases. In their great desire to lay all the troubles and fancied troubles of this country to the New York Stock Exchange, some of our legislators go to such lengths that it makes it difficult to decide where ignorance leaves off and wilful misunderstanding begins.
Assuring you that if I can be of any further service it will be a pleasure to have you call upon me, I am,
Last evening I did not leave with you the report of the Comptroller which gave the percentages of reserves of the banks in New York and other parts of the country, as I felt that I could make a stronger presentation by preparing some computations from the figures based on actual cash. Take pleasure in enclosing herewith copies of such abstracts.In explanation would say that I first figured the exact amount in cash that central reserve city, reserve city, and country banks (by States) were required to keep in their own vaults under the law, based on their deposits, as shown in the Comptroller’s report at the close of business December 3, 1907. I then took the actual cash that all such banks held in their vaults. The results show that, while New York City banks were under their reserve to amount exceeding $25,000,000., the reserve cities as a whole were over their reserve, even though a few of them showed a shortage, and that the State banks in every State and Territory in the United States, outside of Alaska, showed an excess of cash required of 76%, or $113,840,000. These country banks could have carried an average excess reserve over requirements of 54%, and then have divided the rest up among the three central reserve cities of New York, Chicago and St. Louis, which would have resulted in making up their entire deficit of $32,000,000.
Instead, therefore, of the so-called “big interests”, and particularly the New York bankers, having brought on or purposely caused the panic, as has been so kindly suggested by variojus members of Congress, these figures show the whole trouble to have been due to actual hoarding of money by country banks in all parts of the United sStates, particularly in the West and South.
You will notice, in the enclosed tables, that many of the banks in the Southern and Western states carried over 100% more cash in their vaults than the law required. The banks in Georgia heold 187% more cash than was necessary; in Alabama 169%, in Texas 145%, in Colorado 164%, in Oregojn 159%. These figures clearly show that, while New York was making every effort to protect the rest of the country and live up to its position as a central reserve city, the country banks were all taking more than their share; and, further, that they could have carried an average excess cash reserve iof over 50% and still have left enough funds for the central reserve cities to do business without friction.
It would seem to me that it is due New York City to have these figures read into the record of the United States Senate, after all of the false statements that have been made since the panic in regard to its position. Should you desire to obatain a copy of the Comptroller’s report from which these figures were taken, you can get one from the Treasury Department. The document is No. 56, and is dated December 23, 1907, signed William B. Ridgely, Comptroller.
Referring to another portion of our conversation last evening which had reference to the sale of our stocks and bonds that are held abroad, would say that if there were not a single loan on stocks in this country, the offering of such securities upon the New York Stock Exchange, combined with the refusal to purchase and the consequent dropping of rates and prices that would occur, would mean fearful losses to the people of this country. It seems to be human nature and is the actual practice of thousands and thousands of individuals who own stocks outright, to get frightened and sell them when the market goes down. If there were not men who had enough confidence in the institutions of the United States to purchase stock offered on the stock market at some rate, how could it be expected that the people would have any faith in what they hold? Again, there is another class of people, including many, many thousands in this country, who are always ready to buy stocks and bonds when rates get low enough to make the investment good. If foreign held stocks and bonds were offered upon the New York Stock Exchange, and the market were allowed to drop until the investment represented 7%, 8%, 9% and 10% interest, this class of people would begin to purchase, and their purchases would be just as effective, as far as sending gold out of the country is concerned, as if the purchases were made by men connected with some of the large institutions who might wish to protect their stock from raids and endeavor to hold the market up through purchases. In their great desire to lay all the troubles and fancied troubles of this country to the New York Stock Exchange, some of our legislators go to such lengths that it makes it difficult to decide where ignorance leaves off and wilful misunderstanding begins.
Assuring you that if I can be of any further service it will be a pleasure to have you call upon me, I am,
Original Format
Letter
To
Root, Elihu, 1845-1937
Files
Collection
Citation
Strong, Benjamin, 1872-1928, “Benjamin Strong Jr. to Elihu Root,” 1913 December 13, WWP18428, Benjamin Strong Jr. Papers, Woodrow Wilson Presidential Library & Museum, Staunton, Virginia.