Benjamin Strong Jr. to Elihu Root
Title
Benjamin Strong Jr. to Elihu Root
Creator
Strong, Benjamin, 1872-1928
Identifier
WWP18432
Date
1913 December 16
Description
Benjamin Strong Jr. sends Senator Elihu Root a statement of the loans and discounts of the Clearing House Banks of New York city from 3 August 1907 to 1 January 1908.
Source
Benjamin Strong Jr. Papers, New York Federal Reserve Bank
Language
English
Text
My dear Senator:
Enclosed herewith take pleasure in sending you statement of the loans and discounts of the Clearing House banks of New York city from August 3, 1907 to January 1, 1908.
Taking the dates of August 17 and November 30, we find that loans increased $102,000,000., which would require, on a 25% basis, a reserve of $25,000,000. In the letter which I gave you this morning, you will note that the New York banks held, on August 17, a certain excess of reserve and on November 30 a certain deficiency of reserve. Adding these two together you will obtain the amount of reserve reduction that occurred in proportion to deposits. From this deduct $25,000,000., which represents the reserve required because of the increase in loans, and you will have a net decrease of reserve shown by the New York Clearing House banks of a very large amount. I am sorry that I have not an extra copy of the figures I gave you this morning, so that I can give you the exact amount instead of having to ask you to make them up. These figures, in connection with the fact that the actual cash reserves in New York banks decreased something like $57,000,000., if I remember correctly the figures I gave you, absolutely refute Senator Swanson’s argument as to the deficiency of reserves of New York banks being made up by increased loans.
Have just been reading Senator Swanson’s address and find that it is so full of inaccurancies that it seems almost useless to consider it. In the first place, on page 392 of the Congressional Record, he states that the report made by the New York banks for that time, shows that loans made on collateral security which are loans made for stock speculation on the Exchange, amounted to $1,169,000,000., etc. These represented the total loans made by banks in New York City, and not the loans made upon the Stock Exchange. The Senator must have guessed what these loans were for. The ordinary division orf loans in the fall, between the brokers’ loans made for placing money upon the Stock Exchange and loans for other purposes, is shown in the Clearing House statement that I gave you for September 24, 1913. You will note that the total loans to brokers amounted to only $264,000,000., whereas nearly a billion dollars in loans was made for commercial and industrial purposes. The total loans of $1,169,000,000. shown by Senator SwansonClaude A. Swanson would unquestionably have to be divided up in about the same proportion, as that is the way the business of New York banks run every fall. His statement is absurd and untrue.
At the bottom of page 392, 2nd column, the SenatorClaude A. Swanson states that the reserve of New York banks during the entire suspension did not go below $215,000,000., and he reiterates this in other places. As a matter of fact, the Comptroller’s report of December 3, 1907, shows that their cash in hand was $2180,000,000., which is not important, except for proof of the inaccuracy of Senator Swanson)sClaude A. Swanson statement.
At the top of the first column, page 393, he states that the entire loans of the country were contracted $85,000,000., while in New York they were increased $58,000,000., of which $54,000,000. was on call collateral loans and $4,000,000. on time collateral loans. He makes no statement as to where he obtained these figures, even though he refers to the Comptroller’s report as far as the totals are concerned. The increase in loans by New York banks at that time included loans to country banks. He then staates that the amount shipped into the interior was less than the Government and other deposits made with the banks in New York, which is another misstatement that is seemingly inexcusable. The records of the Treasury Department show that the banks in New York had a debit to the Subtreasury in New York, during October and November, 1907, of $5,539,000.
He further states that the gold imported by New York belonged to the interior, as it was their bills that were used to obtain it. Again the SenatorClaude A. Swanson shows his entire lack of knowledge of our monetary system. New York banks paid a premium for the cotton bills and wheat bills purchased by them during the fall of 1907 that were used to import gold. The banks throughout the country who collected such exchange in their respective districts and sold it to New York, preferred to take the premium which existed when they were paid in New York exchange, rather than to sell such bills at the discount which would be necessary in order to cover the cost of importing gold. This I know positively to be true, as I personally offered to the bankers of Texas$1,000,000. of gold in exchange for $1,000,000. in cotton bills, if they would pay the cost of importing the gold, which included interest on the money while the bills were in transit and the gold was on the water, the premium that had to be paid for the gold in London, and the cost of discounting the bills in the London discount market in order to make cash with which to purchase the gold. A combing of the market in Texas for cotton bills that could be sold upon such a basis proved futile, and not one single bill could be bought. Instead, all of those having foreign bills of exchange to sell drawn against cotton, preferred to sell them in return for New York exchange, for two reasons; first, because of the big premium that they would receive on New York exchange, and, second, because of the currency they were receiving from the New York banks, even though such banks, for the protection of t banks,all interests, went on a Clearing House basis as far as the public was concerned. The New York banks, therefore, were actually paying the premiums that were involved in tranferring cotton and wheat bills into gold, and they actually paid the West and South for such bills, to the dentire satisfaction of those selling them. According to Senator SwansonClaude A. Swanson, a man can have his pie and eat it too. In other words, he can sell his foreign bills of exchange and obtain pay for them, and still have them belong to him.
The absurdity of such a statements and the lack of knowledge displayed is almost to great to make it seem worth while to answer them.
On page 399, at the top of the first column, he speaks of our exports exceeding our imports, etc., but ignores entirely the invisible balance of trade about which I spoke to you.
For your information, should you wish to look it up, I would refer you to the second column, page 400, of the matter following, presented by Senator O’Gorman. These statements bear out the general conditions which existed between New York City banks and their correspondents at that time. I will admit, however, that I have been told that some banks which applied for loans for the purpose of obtaining currency to increase their home reserves away above the percentage required, were turned down, although, unfortunately, not enough of them were turned down at the beginning of the panic, before it was realized what might develop. In Chicago the same thing occurred. Country banks came in and endeavored to borrow money for the purpose of obtaining the proceeds in cash, with which to abnormally increase their reserves.
On page 403, in his last statement in the second column, Senator SwansonClaude A. Swanson states that the New York banks never reduced their reserves but$9,000,000., which is a misstatement and not in accord with the facts. In the statement I made to you this morning, I showed that they decreased $57,000,000. net, after including all the money deposited with them by the Government and others, and the gold which was received from abroad.
Nothing further would seem necessary in order to refute Senator Swanson’s statements, which have been reiterated in different form by Senator Owen.
Enclosed herewith take pleasure in sending you statement of the loans and discounts of the Clearing House banks of New York city from August 3, 1907 to January 1, 1908.
Taking the dates of August 17 and November 30, we find that loans increased $102,000,000., which would require, on a 25% basis, a reserve of $25,000,000. In the letter which I gave you this morning, you will note that the New York banks held, on August 17, a certain excess of reserve and on November 30 a certain deficiency of reserve. Adding these two together you will obtain the amount of reserve reduction that occurred in proportion to deposits. From this deduct $25,000,000., which represents the reserve required because of the increase in loans, and you will have a net decrease of reserve shown by the New York Clearing House banks of a very large amount. I am sorry that I have not an extra copy of the figures I gave you this morning, so that I can give you the exact amount instead of having to ask you to make them up. These figures, in connection with the fact that the actual cash reserves in New York banks decreased something like $57,000,000., if I remember correctly the figures I gave you, absolutely refute Senator Swanson’s argument as to the deficiency of reserves of New York banks being made up by increased loans.
Have just been reading Senator Swanson’s address and find that it is so full of inaccurancies that it seems almost useless to consider it. In the first place, on page 392 of the Congressional Record, he states that the report made by the New York banks for that time, shows that loans made on collateral security which are loans made for stock speculation on the Exchange, amounted to $1,169,000,000., etc. These represented the total loans made by banks in New York City, and not the loans made upon the Stock Exchange. The Senator must have guessed what these loans were for. The ordinary division orf loans in the fall, between the brokers’ loans made for placing money upon the Stock Exchange and loans for other purposes, is shown in the Clearing House statement that I gave you for September 24, 1913. You will note that the total loans to brokers amounted to only $264,000,000., whereas nearly a billion dollars in loans was made for commercial and industrial purposes. The total loans of $1,169,000,000. shown by Senator SwansonClaude A. Swanson would unquestionably have to be divided up in about the same proportion, as that is the way the business of New York banks run every fall. His statement is absurd and untrue.
At the bottom of page 392, 2nd column, the SenatorClaude A. Swanson states that the reserve of New York banks during the entire suspension did not go below $215,000,000., and he reiterates this in other places. As a matter of fact, the Comptroller’s report of December 3, 1907, shows that their cash in hand was $2180,000,000., which is not important, except for proof of the inaccuracy of Senator Swanson)sClaude A. Swanson statement.
At the top of the first column, page 393, he states that the entire loans of the country were contracted $85,000,000., while in New York they were increased $58,000,000., of which $54,000,000. was on call collateral loans and $4,000,000. on time collateral loans. He makes no statement as to where he obtained these figures, even though he refers to the Comptroller’s report as far as the totals are concerned. The increase in loans by New York banks at that time included loans to country banks. He then staates that the amount shipped into the interior was less than the Government and other deposits made with the banks in New York, which is another misstatement that is seemingly inexcusable. The records of the Treasury Department show that the banks in New York had a debit to the Subtreasury in New York, during October and November, 1907, of $5,539,000.
He further states that the gold imported by New York belonged to the interior, as it was their bills that were used to obtain it. Again the SenatorClaude A. Swanson shows his entire lack of knowledge of our monetary system. New York banks paid a premium for the cotton bills and wheat bills purchased by them during the fall of 1907 that were used to import gold. The banks throughout the country who collected such exchange in their respective districts and sold it to New York, preferred to take the premium which existed when they were paid in New York exchange, rather than to sell such bills at the discount which would be necessary in order to cover the cost of importing gold. This I know positively to be true, as I personally offered to the bankers of Texas$1,000,000. of gold in exchange for $1,000,000. in cotton bills, if they would pay the cost of importing the gold, which included interest on the money while the bills were in transit and the gold was on the water, the premium that had to be paid for the gold in London, and the cost of discounting the bills in the London discount market in order to make cash with which to purchase the gold. A combing of the market in Texas for cotton bills that could be sold upon such a basis proved futile, and not one single bill could be bought. Instead, all of those having foreign bills of exchange to sell drawn against cotton, preferred to sell them in return for New York exchange, for two reasons; first, because of the big premium that they would receive on New York exchange, and, second, because of the currency they were receiving from the New York banks, even though such banks, for the protection of t banks,all interests, went on a Clearing House basis as far as the public was concerned. The New York banks, therefore, were actually paying the premiums that were involved in tranferring cotton and wheat bills into gold, and they actually paid the West and South for such bills, to the dentire satisfaction of those selling them. According to Senator SwansonClaude A. Swanson, a man can have his pie and eat it too. In other words, he can sell his foreign bills of exchange and obtain pay for them, and still have them belong to him.
The absurdity of such a statements and the lack of knowledge displayed is almost to great to make it seem worth while to answer them.
On page 399, at the top of the first column, he speaks of our exports exceeding our imports, etc., but ignores entirely the invisible balance of trade about which I spoke to you.
For your information, should you wish to look it up, I would refer you to the second column, page 400, of the matter following, presented by Senator O’Gorman. These statements bear out the general conditions which existed between New York City banks and their correspondents at that time. I will admit, however, that I have been told that some banks which applied for loans for the purpose of obtaining currency to increase their home reserves away above the percentage required, were turned down, although, unfortunately, not enough of them were turned down at the beginning of the panic, before it was realized what might develop. In Chicago the same thing occurred. Country banks came in and endeavored to borrow money for the purpose of obtaining the proceeds in cash, with which to abnormally increase their reserves.
On page 403, in his last statement in the second column, Senator SwansonClaude A. Swanson states that the New York banks never reduced their reserves but$9,000,000., which is a misstatement and not in accord with the facts. In the statement I made to you this morning, I showed that they decreased $57,000,000. net, after including all the money deposited with them by the Government and others, and the gold which was received from abroad.
Nothing further would seem necessary in order to refute Senator Swanson’s statements, which have been reiterated in different form by Senator Owen.
Original Format
Letter
To
Root, Elihu, 1845-1937
Files
Collection
Citation
Strong, Benjamin, 1872-1928, “Benjamin Strong Jr. to Elihu Root,” 1913 December 16, WWP18432, Benjamin Strong Jr. Papers, Woodrow Wilson Presidential Library & Museum, Staunton, Virginia.