Questions
Title
Questions
Creator
Strong, Benjamin, 1872-1928
Identifier
WWP18888
Date
[1913]
Source
Benjamin Strong Jr. Papers, New York Federal Reserve Bank
Language
English
Text
QUESTIONS
Page 3, Lines 17 - 23.
If National banks elected to resign their charters, and lawful Page 5, Lines 8 - 14. money was deposited with the Treasury Department for their circulation, and this money was then paid over to regional banks whose stock was owned by the Government, not having been subscribed for by either banks or the public, how would such lawful money get back into circulation?
Page 4, Lines 11 - 17. Can the board of directors of a National bank fairly assume any such liability under such conditions? No salable investment is being suggested, but in effect an additional capital liability.
Page 4, Lines 18 - 22. Will it not only not be wise, but necessary, for National banks a in the United States in reserve cities, in order to protect themselves, to immediately begin to curtail their lines, in order to make it possible for them to meet any condition that may arise that calls for a transfer of the reserve deposits that they may hold?Would not their greatest safety lie in refusing to go into the system?And could they, in justice to their depositors, go into the system under such circumstances?Those depositors have a right, under custom and existing arrangements with their bankers, to borrow. If such borrowings are to be curtailed because of the establishment of a regional bank system, must not the banker, in order to fairly live up to his duty, resign his National charter?
Page 5, Lines 8 - 14. Would it not be necessary, under the terms of this Act, for suit to be brought at the end of sixty days after its passage, if a National bank had not at that time signified its intention to become a member bank?
Page 5, Lines 14 - 20. What would the penalties to Directors consist of?What dollar amounts would they probably amount to?When a director of a National bank takes the oath of office, he enters into a contract with the Government to live up to the requirements of his office, in accordance with the National Bank Act. Is Congress justified in breaking this contract before its expiration? Cannot it be expected that many directors of banks will resign rather than subject themselves to any such liability?
Page 6, Lines 1 - 10. If any considerable portion of stock is not taken by banks, and the success of the regional banks is uncertain, what possible reason could the public have for subscribing for the stock?
Page 7, Line 4. Why is the Secretary of the Treasury given this unwarranted power?
Page 7, Lines 5 - 14. Could not a political Administration, by increasing the capital of any properly organized regional bank, all the stock of which was owned by member banks, to such an amount that the voting trustees could elect all of the Class A and Class B directors?
Page 7, Lines 15 - 18. If such rules and regulations are unfair, who can review them?Are National banks going to be obliged to accept them before they see them?
Page 9, Lines 7 - 24. How could a regional bank be organized if less than five banks accepted the system in a district, and the balance of capital were subscribed by the public and or the Government?
Page 10, Lines 14 - 17. If a regional bank suffers sufficient losses to wipe out its capital and surplus, could it not still continue to do business, under the layw, for its full period of twenty years?
Page 11, Lines 12 - 21.What is to be the character and form of the notes issued by regional banks against United States bonds? Are these notes to be guaranteed by the United States Government? Must regional banks maintain a reserve against such notes? If not, when they are presented for redemption, how is the regional bank going to keep its reserve good against its deposit and circulating note liabilities? Does the limitation of the National Bank Act apply to the volume of notes, so that each regional bank may only issue notes to the amlount of its capital? If so, what is the object or necessity of this provision, as only $106,000,000 of the notes, based on National bank capitalization, could be issued, or about one-seventh of the total issue of National bank notes now outstanding? If such limitation is not intended, are the regional banks to issue such notes proportionately to their capital until the whole 700 odd million of National bank notes are retired, or can any regional bank issue them to any amount?
Page 12, Lines 8 - 15. Could not the Federal reserve board, upon being appealed to by a member bank who had been refused discount for proper reasons in the opinion of the directors of a regional bank, overrule such regional bank and demand that the discount be made? Would any banker who is obliged to keep his reserve with such regional bank, feel justified in doing so under such circumstances? Is it necessary or advisable to give the Federal board such power, when it has its own agent as acting chairman of a regional bank, who can get up out of his chair as a regional director and walk over to his corner as Federal agent and ask himself what he thinks about it?Under this provision, would not the directors of every regional bank be obliged to stop their discounts to each member bank when its proportion of the whole had been asked for?Is it not true that solvent bankers may differ in their loan requirements very materially at the same time, and that therefore this provision will curtail the mobility of the reserves of each regional bank and defeat one of the purposes for which the bill is supposed to be drawn
Page 12, Lines 22 - 25. May the third director in Class B be a banker?Who is to decide whether Class B directors are qualified for office, under this provision?If two groups of bankers both desire to elect a Class B director who represents agricultural interests, which group takes precedence?How is it going to be possible, under the system of election provided for in the bill, for the three different fgroups to elect men engaged in the three different kinds of pursuits mentioned?
Page 13, Lines 7 - 14. Is it right and fair to allow the small institutions, which would have to assume the smallest liability in making deposits with the regional bank, to elect two directors out of three, while the largest banks who would have the most involved in the regional bank could only elect one director, and then probably only in conjunction with a number of small banks?Even if, through the jugglery of words, this could be figured out as being fair, is it safe to allow small institutions to elect two men, who would be obliged to handle immense amounts of money, all out of proportion with the natural business that has been done by these men before their election who could outvote the one who presumably may have had experience in large matters?
Page 15, Lines 2 - 12. Is it desirable or safe to have the chairman of the board of directors of a regional bank the principal representative of the Federal board, having control as he would, as agent of the Federal board, of all the gold and securities that he as chairman of the regional bank had placed with himself as Federal agent?Does not the only reason for such an outrageous condition lie in the attempt to bring this regional system into line with a central bank?
Pages 17 and 18. Sec. 5. If a regional bank has outstanding circulation, issued under the provision onf page 11, lines 12 to 21, and such circulation is based upon its capital, how is it going to handle such circulation in connection with the fluctuations of its capital?
Page 18 (all) andPage 19, Lines 1 - 11. Can foreign bankers, who are naturally suspicious of alien institutions and who deal with them without any feeling of patriotism, but merely for such profit as they can make out of them, ever be induced to place any confidence in a system of regional banks, some of which are capitalized beneath their notice, realizing that even such capital as the regional banks may have can be dissipated without the directors or management having the slightest control in the matter; and, further, that such dissipation may occur through the failure of member banks, of whose condition and financial standing they know nothing; and, further, that such failures might not alone result in reducing the capital stock of a regional bank, but might also affect other assets if the failed bank was indebted to it?How can institutions so organized be expected to take their part in the international markets of the world, in protecting our gold supply?
Page 19, Lines 13 - 25. The insurance fund suggested would only build up gradually during a course of years, even provided there were no failed banks. Such being the case, how is it going to be possible to use this insurance fund in case of failure of several banks whose total losses, that would have to be paid from the insurance fund, would exceed such fund?Would the precedence of failure be of any value to the depositors of failed banks?If not, in what possible manner could an adjustment be made, while in the very process of adjustment another bank might fail? Again, it is not known at the date a bank fails what the loss to depositors is going to be. If precedence of failure is to be used as a basis for adjustment, how is it ever going to be possible to determine how to proportionately divide up a changing insurance fund that does not equal the liabilities it is to cover?If precedence were of value, so that every bank would be induced to fail early and avoid the rush, suppose a second bank failed, and the amount of deficiency became known a year or so before the deficiency in the case of the first bank was determined: how would this adjustment be made?
Page 24, Sec. 10.Would it not be possible for a President, during a single term, to change the political complexion of the Federal board?This being true, would not this be a direct invitation to take advantage of such an opportunity, and would it not greatly multiply the power for disaster that any unfortunate choice for a President might entail?
Page 28, Lines 18 - 23. Is it not extremely dangerous to publish the maturities of the paper of a regional bank, which might make it possible for any member of the community who did not understand the banking business but who was of an inquiring turn of mind, to see in such figures at certain periods a condition that would appear dangerous to him and that might be the basis for starting a serious story concerning the regional bank? Would not the publishing of such statistics necessarily at times seriously handicap the directors in their operation of the bank?
Page 28, Par. (b). Is not the present banking system, under which bankers in one district, say, for instance, in the South, arrange directly to discount with bankers in what would be another district, say Chicago or New York, safer and better, carrying with it as it does an opportunity for the bankers in the discounting districts to be entirely familiar with the standing of those to whom they make loans, than the system proposed of permitting the Federal board to force regional banks to discount paper with which they are not familiar?Would not a central banking system be far better and much safer than either our present system or the proposed regional bank system? How could a regional bank whose assets are wholly based upon the capital and resources of the banks in its district, which is situated in a district such as that comprising the territory, say, East, West and North of New Orleans, pass through the season during which practically all of its member banks would be obliged to borrow from it, when such member banks as they are constituted today are obliged to borrow outside of this district during the crop-moving season in amounts approximating $200,000,000?Would not such a regional bank be obliged to borrow every year?
Page 29, Par. (c).As the dividend is cumulative to stockholders, this tax must be paid out of that portion of the profits that would otherwise fgo to the Government. Such being the case, would there be any objection whatever on the part of the directors, even those that represented member banks, to the tax suggested?Is it intended that this tax shall be paid to the Government?If so, would it not in reality be an operation that would be represented by the Government taking money out of one pocket and putting it into another?This being true, after the tax is paid, does not every one concerned stand in exactly the same relation as to profits that they did before? This being true, of what possible use is the tax?
Page 29, Lines 6 - 11. What member banks, under the bill, are required to keep the same reserves as the Federal reserve bank?Are not such banks the only ones that could be charged a tax, under the provisions of this paragraph as it is worded?
Page 29, Lines 18 - 23. Are the reserve cities and central reserve cities still to be maintained because it is realized that the regional bank system will not do the work required of it, as would a central bank?
Page 29, Lines 24 - 25.
Page 30, Lines 1 - 2. Is it wise or safe to make it possible for a banker who has applied for a loan and has been refused by an officer of his regional bank for good cause, to be able to go over the heads of the board of directors of the regional bank in his district and demand of a politically constituted board,– or, if you prefer to call it a board that may upon occasion be politically constituted,– and obtain the discharge of such officer?
Page 30, Par. (k).If the Federal reserve board should authorize member banks to carry Federal reserve notes as reserve, how would it be possible to retire such notes from circulation?
Page 30, Par. (l). Can Congress, under the Constitution, delegate legislative power such as is contemplated in this provision?
Page 31, Lines 16 - 21.What possible good could come from calls for information that might be made by the Advisory Council upon the Federal Board?If the Federal Board was acting improperly, would it not and could it not answer such calls for information with any sort or a report it might choose to make? Is not the power to call for information nullified unless those who make the call can check it up?Such being the case, would not this Advisory Council give a false sense of secutrity to bankers connected with the system?
Page 32, Lines 1 - 11. How would clerks in member banks and tellers in regional banks be able to check up their deposits as they were being made, and find out whether all the banks that items were drawn upon were member banks?How would it be possible for such clerks and tellers to keep themselves informed as to which member banks had failed?Again, and what seems possibly more difficult to answer, how would such clerks and tellers, after having looked up these items and found that they were drawn upon member banks, and had by telegraphic communication or otherwise found that such banks were still in existence, be able to determine whether such banks, though still in operation, were solvent?Is it intended that we shall have two systems for the collection of checks in this country: one for items drawn upon members and another for items drawn upon all other firms banks, corporations, firms, and individuals?
Page 32, Lines 12 - 25
Page 33, Lines 1 - 7. Is it wise to
allow members to borrow from regional banks without any limit in respect to their capital?
Page 32, Lines 22 - 25.Is it intended that this provision shall make it possible for all of those interests who may desire, to purchase and carry in warehouse for future sale and delivery, agricultural and other products?If it is not so intended, how, in view of this provision, can a regional bank prevent aiding speculators who desire to carry agricultural or other products for speculative purposes?If a regional bank in an agricultural district became so loaded up with bills of exchange issued against warehouse commodities that it could not meet the current needs of its district, is it going to be allowed to borrow from other regional banks and also curtail their ability to meet current business?
Page 33, Lines 8 - 15. Why are Federal banks authorized to make loans to member banks against bills of exchange which do not bear an acceptance, to the full amount of their capital, or to an unlimited amount if the intent of the Act is so construed, and are only allowed to loan to the extent of one-half the capital and surplus of a member bank when the bills of exchange bear the additional security of an acceptance?Is it not possible that this provision might seriously curtail the ability of regional banks to deal in foreign exchange?
Page 33, Lines 23 - 24.Why are National banks allowed to accept drafts drawn upon them having six months to run, when only drafts of that character having maturity within ninety days of the date of discount are permitted for rediscount?
Page 34, Lines 21 - 22. Does not this provision make it possible for regional banks to loan to member banks any amount, as far as their capital and surplus is concerned?
Page 35, Lines 4 - 8.Is it not possible and probable that general regulations, such as the Federal board might make in such matters, that might be necessary in one district might prohivbit business in another?What possible objection could there be to leave this power with the directors of each Federal reserve bank, instead of reducing them to mere figureheads?
Page 35, Lines 9 - 17.Is it right that a bank of issue should be allowed to buy commercial paper without restriction in the open market, which it might use as collateral to its note issues?Does it not detract materially from the security of the note issue?Explain how regional banks are going to work together in the foreign market.Which one of these banks would take precedence over the others, should foreign operations be necessary or advisable?Which regional bank would stand such losses as might occur through a necessity that might arise requiring the disposal of foreign exchange held by all of them?Would the bank handling the operation have to stand the loss, the other banks turning over their exchange to it, provided, of course, that any means is found to require a joint operation?Might it niot be fair to apportion the loss among all of the regional banks, whether they were carrying on a foreign business or not?If this were done, would it be fair to those who were not in the foreign business, to subject them to losses beyond their control?Again, would it be fair to a regional bank whose manager had handled his exchange in such manner as to enable him to take part in the operation without loss, to have to stand a portion of such losses as might occur through the operations of some other manager?With a number of regional banks, all doing a foreign business, would they not of necessity,– each working for himself, based upon the reserve situation and needs of member banks,– be working along lines directly opposed to each other?Is it not true that in the case of a central bank, all of these serious matters would be eliminated absolutely?
Page 35, Lines 18 - 25. Please explain how eight or twelve regional banks, all authorized to operate in the gold market, can do so effectively and economically? Would not a central bank solve all of the difficulties surrounding these important operations both economically and effectively?
Page 36, par (b). Is it not extremely dangerous to authorize a board that may be politically constituted, to purchase securities issued by political subdivisions?Should not the tendency to borrow, on the part of political subdivisions such as those mentioned in this section, be discouraged rather than encouraged, on general principles?What is to be gained through allowing regional banks to compete with member banks for business of this nature?Are not member banks situated in the political divisions mentioned, better able to judge, not alone of the safety of such issues, but as well of the advisability of encouraging their issuance?
Page 36, par (d). Are all classes of paper that regional banks are authorized to purchase intended to be covered in this provision?If not, what classes of paper are to have special rates applied to them, and which classes are to be exempt from this extraordinary measure?How could regional banks ever purchase foreign bills of exchange on rates established by the Federal reserve board?
Page 36, par (e). Please explain how eitght or twelve regional banks with branches abroad could operate effectively and economically “for exchange purposes”?There is no question but what a central bank could do business along these lines economically and with advantage to the country, but how is it going to be possible for eight or twelve regional institutions to dlo so? Would not the representatives of the different Federal banks have to work for the benefit of their own institutions, and would not this of necessity result in their operating against each other a large part of the time?
Page 37, Lines 5 - 15. If the Federal reserve board voted six to one against authorizing a regional bank which was over-extending itself improperly, from borrowing of other regional banks, and the one negative vote was cast by the Secretary of the Treasury, could he not, under the provisions of this bill, nullify the action of the Federal reserve board by transferring Government deposits from other regional banks to the one asking for itaid? If the regional bank asking for the accomodation was in a district whose vote might decide a rapidly approaching presidential election, might not the pressure upon the Secretary of the Treasury to help out such district be almost too great to be resistede?Would not such a condition of extension be more apt to occur in the fall, just before a presidential election, particularly if platform policies were involved that might represent serious difference of opinion, than at almost any other period, taken in connection with the fact that the fall is the time when the crops have to be moved and when most money is needed?Is it not true that this unlimited and unwarranted power would not be possible in the case of a central bank?Is it also not true that money deposited in a central bank by the Government, would be far safer than money that might be placed with regional banks in sums far exceeding the capital of such banks?
Page 37, Lines 16 - 22. Postal savings, representing the deposits of the people in the localities where they are made, and such people having established by law systems of State banks to carry on their business, is it right or justifiable to exclude State banks from acting as depositaries for postal savings, when such deposits are made against collateral satisfactory to the Government?May there not be many communities throughout the country where there are no member banks, which would result in taking the postal savings of such communities into other districts, and defeat the provisions of the postal savings law intended to keep such funds at home?
Page 37, Lines 24 - 25. On what ground do you justify the placing in the hands of a Federal board which may be made up of individuals who have no financial responsibility, and which as a board haves no financial standing, of circulating notes that are ready for issuance?Is not this the introduction of another piece of dangerous machinery, necessary in order to make a central bank of a regional Page 37, Sec. 16. Does the Government of the United States own t the gold and collateral that is to be held by the Federal reserve board as security for the note issues of regional banks?This question having been answered in the negative, does not the guarantee of these notes by the Government then become a fiat guarantee?In case of the failure of a regional bank that had outstanding a very large issue of notes, and it was found that the Fedearral reserve agent had disposed of the gold and security in his care, would not the United States be placed in exactly the same position in regard to the redemption of these notes that it would be if it had issued its own fiat notes pure and simple, without the intervention of any bank in between?
Page 38, Lines 1 - 9. Suppose member banks borrow of a regional bank until its reserves are exhausted, and such borrowings are desired in credits and not in circulating notes; that member banks draw drafts upon these credits, which are presented to the regional bank and, if paid, in gold or lawful money, would deplete its reserves. Would the regional bank, under this act, be authorized to pay such settlements in a Clearing House or direct in regional bank circulation, provided it were not desired by holders of the drafts?Even if regional banks were authorized to make settlements in such manner, could not those who received the circulating notes present them to the bank and demand gold and lawful money?Under such conditions, of what value to the regional bank would be its note-issuing ability?Will not this regional bank system, representing merely the consolidation of district demands, be apt to be simultaneous, instead of giving such demands a mobility country-wide, without friction, loss of time or expense, as would be true in the case of a central bank?
Page 39, Lines 19 - 24. Is it intended that Federal reserve banks receiving circulating notes of other regional banks shall pay the transportation charges upon such notes when returning them for redemption, or are such charges to be paid by the issuing bank?
Page 41, Lines 1 - 7. This provision states that the bank shall be charged with the amount of such notes, and shall pay such rate of interest on said amount as may be established by the Federal reserve board. Under this provision, would not a regional bank to be obliged to pay interest upon such notes as it might have in its own vault or in the vaults of its branches? Should not such interest be paid only upon such amount of circulation as might be outstanding? Who would this interest be paid to? If to the Government, what possible difference would it make whether any interest were paid or not, for if the regional banks were successful, the proportion of the profit that would accrue to the Government would be the part reduced through the payment of interest. The Government would not lose, therefore. Would this not mean that instead of the Government's profit from the regional banks being represented through payment of dividents alone, it would be divided up into three sorts of payment, represented by dividens, taxes and interest, all of which together would exactly equal the dividends? Under such circumstances, who would have the slightest objection to the paying of this interest, which is apparently intended to act to prevent over-expansion?
Page 44, Lines 7 - 13. Is it not true under this provision in connection with the first paragraph of section 13, that a regional bank situated in Chicago could forward exchange on banks, members of the New Orleans regional banks, to New York, for exchange purposes, in order to make New York exchange, if New Orleans eschange were at a discount? Is it not also truge that the New York regional bank could then forward these items to St. Louis for collection, if it needed St. Louis exchange? Is it not true that the St. Louis regional bank, requiring Chicago exchange in preference to New Orleans exchange, could then send these items to Chicago for exchange purposes? Is it not true that this circle might be kept up indefinitely, while New Orleans exchange was at a discount in these three cities? Is it not true that the regional banks would naturally handle the items in this way, for their own profit, as no one of them would feel that it was the one called upon to stand the loss in exchange? Is it not true that in the case of a central bank, it would have everything to lose and nothing to gain if it handled the items in this way, - for, if the Chicago branch forwarded the items to the New York branch, and the New York branch forwarded theitems to the St. Louis branch, and the St. Louis branch to the Chicago branch, etc., etc., the central bank as a whole would be out of money while the items were in transit, and it would therefore collect them as rapidly as possible? Is it not true that the currents of domestic exhange, due to seasonal operations, are well defined in this country, without any consideration of the banking system? Such being the case, is it not true that regional banks, in trying to meet these exchange conditions, would first use up their balance with other regional banks, and then be obliged to ship lawful money for their credit, which would deplete their reserves, although such lawful money would, of course, increase the reserves of some other regional bank? Is it not true that the case of a central bank, where the lawful money in every branch would count as reserve, there would be no necessity of such shipments? Is it not true, therefore, that a regional system would be much more expensive to the country in the handling of domestic exchange, as well as in handling foreign exchange?
Page 45, Sec. 18. Would not such a transaction be limited to $9,000,000 a month?
Page 46, Lines 3-13. Is it intended that such lawful money as might be deposited with the Treasurer of the United States by National banks, may be deposited by the Secretary of the Treasury in regional banks? If such authority is not intended, might not a large amount of lawful money be withdrawn from circulation? If the Secretary of the Treasury is considered to have authority to deposit such funds with the regional banks, would not this add unknown proportions annually of 700 odd million dollars that he would be able to place at his discretion in any regional bank in the country? Is it safe or right to the business interests and people of the United States, to place such absolute power in the hands of one man?
Page 47, Lines 4-5. If these circulating notes are issued under the same terms and conditions as National bank notes, is there any authority that could compel the regional banks to maintain a reserve against such issues?
Page 47, Lines 5-9. Does this provision, that United States bonds bought by a Federal reserve bank, against which there are no outstanding National bank notes, may exchange," etc., leave the power open to Federal reserve banks to act under the provision of Page 11, Section 8, Lines 12 to 21, ( ), and issue circulating notes against any bonds of the United States, whether they at present bear the circulating privilages or not, thus increasing the amount of notes that might be outstanding against United States bonds from $743,000,000 to $966,000,000., thus adding further to the power of the Secretary of the Treasury and also to the liability of the regional banks that might not need to be covered by reserve?
Page 47, Lines 14 - 17
" Lines 22-24. What possible use can there be of demanding that bankers hold reserves against time deposits, when they know the date of maturity of such deposits and are in position to make loans against them that mature in time to meet such deposits? Is it not really a tax upon time deposits that directly takes away from the bank the ability to pay the high rates of interest that depositors-have a right to expect when they agree to leave money on deposity for a stated length of time?
Page 48, Lines 3 - 25
Page 49, Lines 1 - 21. If the regional bank system works as well as a central bank would, and bankers sitated in cities where regional banks or their branches are maintained could go to such banks at a moment's notice and secure further till money to meet emergency, or further reserve money, why are banks in such cities required to keep a larger reserve than country banks? Is it not true that such country banks as were situated in towns where there was no regional bank, or branches, would not be able to obtain additional till money, or reserve money, in case of emergency as quickly as benks in reserve or central reserve cities, but would require several hours, and in many cases a full day's time, before being able to do so? Such being the case, is there any grounds whatever for recquiring banks in reserve and central reserve cities, to keep a larger reserve than country banks, unless, I repeat, it is realised by those who created this bill that the regional banks cannot do the work that is expected of them?
Page 49, Lines 22 - 25. Why should not member banks always maintain one-half of the reserve required in the Federal reserve bank in commercial paper, under this provision, as they could do so entirely without cost? This being true, do not the reserves recquired of banks receive themselves in three kinds: Cash in vault, credits with the regional bank, and segregated eligible paper? What difference does it make whether a bank segregates eligible paper in its own vault or in the vaults of a regional bank, as far as its value as a reserve is concerned? Is not this a dangerous provision, that might induce banks to feel that they were better protected than they really are, for the commercial paper could not, of course, be used as security to discounts, and until discounted would not really be of any value in case of emergency? Why should not member banks be obliged to discount such paper and have the proceeds credited to their reserve accounts with regional banks, and so be obliged to pay for this privilege, and make it to their interest to reduce the amount of paper so deposited at every opportunity? Is not this provision bad banking, which accomplishes nothing, other than to give a false sense of security?
Page 50, Lines 13 - 16. How is it going to be possible for a State bank becoming a member bank, to do business with any other State bank and at the same time borrow from a regional bank? Is it not true that many State banks are organized with capital that would not make them eligible to join the system? Is it not true that such State banks do business with other banks which might be authorized to join the system? Is it not true, if member State banks loaned to any State bank a member, if in the course of its business it were recquired to borrow from a regional bank, that beyond question it could be said that the State bank which was not a member bank was diriving indirect benefit from the system? Does not this provision make class legislation, intended only for the benefit of eligible banks as against all other banks and such part of our people as deal with them?
Page 51, Lines 5 - 9. Would not a central bank with such branches as it would be possible inexpensively to maintain in Alaska or other points outside the Continental United States, be able to deal with and protect member banks in such localities with more certainty and greater safety than is possible in the regional bank system contemplated.
Page 52, Sec. 20. Will not this provision operate unfairly as banks issue circulation in varying percentages to their deposits? Is it fair to any banks, and particularly to those who may signify their intention of going into this system, to discriminate against them in this manner, after they have made purchases of bonds at high rates in order to furnish circulation to the country, at questionable profit, with the privilege of counting their fiver per cent fund as reserve? Of what possible value to the new system of banking is this unfair requirement?
Page 51, Sec. 21. Is this provision intended to place the office of the Comptroller of the Currency under the Federal reserve board, instead of under the Secretary of the Treasury? If such is the intention, is it nullified by the provision in Page 27, Lines 11 to 19 ( )? In other words, if six members of the Federal reserve board voted to have the Comptroller make a special examination of some institution, and the Secretary of the Treasury voted against it, would not his power outside of the Federal reserve board enable him to overrule them? What possible excuse is there for giveing any one man such power?
Page 55, Lines 5 - 16. Is it not possible, but very probable, that an individual will not care to own stock of a National bank, under such circumstances, when he can invest his money in other ways that might bring him as good or a better return, when he knows that if he becomes dissatisfied with the management and fearful as to the standing of the bank, and, having too small an amount of stock, maybe, to control its operations, he desires to sell, that he canot do so without retaining his liability for sixty days? Is not this provision, through inducing fear on the part of the public to hold stock in National banks, going to do more harm than good?
Page 66, Sec. 24. Rather than tie up the funds of commercial banks in long-time paper of this character, would it not be far better to create a new class of institutions for the special purpose of loaning on mortgages?
Page 55, Sec. 25. How is a National bank to set aside a certain portion of its capital as security for business to be undertaken by a branch of such bank, and prevent liabilities assumed by the branch from applying to that portion of the capital supposed to be saved for this country? If it were possible to accomplish this, how could any National bank expect its branch to do business in a foreign county with the branch capital so limited, particularly in competition with banks having capital many times that of the entire capital of the National bank? Would not this provision, if it were possible to carry it out, which is doubtful, be apt to induce carelessness on the part of those managing the bank in this country as to those managing the foreign branch? Might not they be willing to have the foreign manager accept larger risks than might be warranted, if the profit appeared unusual and the liability was limited to a small amount of segregated capital? Of what possible use is such a provision?
Page 3, Lines 17 - 23.
If National banks elected to resign their charters, and lawful Page 5, Lines 8 - 14. money was deposited with the Treasury Department for their circulation, and this money was then paid over to regional banks whose stock was owned by the Government, not having been subscribed for by either banks or the public, how would such lawful money get back into circulation?
Page 4, Lines 11 - 17. Can the board of directors of a National bank fairly assume any such liability under such conditions? No salable investment is being suggested, but in effect an additional capital liability.
Page 4, Lines 18 - 22. Will it not only not be wise, but necessary, for National banks a in the United States in reserve cities, in order to protect themselves, to immediately begin to curtail their lines, in order to make it possible for them to meet any condition that may arise that calls for a transfer of the reserve deposits that they may hold?Would not their greatest safety lie in refusing to go into the system?And could they, in justice to their depositors, go into the system under such circumstances?Those depositors have a right, under custom and existing arrangements with their bankers, to borrow. If such borrowings are to be curtailed because of the establishment of a regional bank system, must not the banker, in order to fairly live up to his duty, resign his National charter?
Page 5, Lines 8 - 14. Would it not be necessary, under the terms of this Act, for suit to be brought at the end of sixty days after its passage, if a National bank had not at that time signified its intention to become a member bank?
Page 5, Lines 14 - 20. What would the penalties to Directors consist of?What dollar amounts would they probably amount to?When a director of a National bank takes the oath of office, he enters into a contract with the Government to live up to the requirements of his office, in accordance with the National Bank Act. Is Congress justified in breaking this contract before its expiration? Cannot it be expected that many directors of banks will resign rather than subject themselves to any such liability?
Page 6, Lines 1 - 10. If any considerable portion of stock is not taken by banks, and the success of the regional banks is uncertain, what possible reason could the public have for subscribing for the stock?
Page 7, Line 4. Why is the Secretary of the Treasury given this unwarranted power?
Page 7, Lines 5 - 14. Could not a political Administration, by increasing the capital of any properly organized regional bank, all the stock of which was owned by member banks, to such an amount that the voting trustees could elect all of the Class A and Class B directors?
Page 7, Lines 15 - 18. If such rules and regulations are unfair, who can review them?Are National banks going to be obliged to accept them before they see them?
Page 9, Lines 7 - 24. How could a regional bank be organized if less than five banks accepted the system in a district, and the balance of capital were subscribed by the public and or the Government?
Page 10, Lines 14 - 17. If a regional bank suffers sufficient losses to wipe out its capital and surplus, could it not still continue to do business, under the layw, for its full period of twenty years?
Page 11, Lines 12 - 21.What is to be the character and form of the notes issued by regional banks against United States bonds? Are these notes to be guaranteed by the United States Government? Must regional banks maintain a reserve against such notes? If not, when they are presented for redemption, how is the regional bank going to keep its reserve good against its deposit and circulating note liabilities? Does the limitation of the National Bank Act apply to the volume of notes, so that each regional bank may only issue notes to the amlount of its capital? If so, what is the object or necessity of this provision, as only $106,000,000 of the notes, based on National bank capitalization, could be issued, or about one-seventh of the total issue of National bank notes now outstanding? If such limitation is not intended, are the regional banks to issue such notes proportionately to their capital until the whole 700 odd million of National bank notes are retired, or can any regional bank issue them to any amount?
Page 12, Lines 8 - 15. Could not the Federal reserve board, upon being appealed to by a member bank who had been refused discount for proper reasons in the opinion of the directors of a regional bank, overrule such regional bank and demand that the discount be made? Would any banker who is obliged to keep his reserve with such regional bank, feel justified in doing so under such circumstances? Is it necessary or advisable to give the Federal board such power, when it has its own agent as acting chairman of a regional bank, who can get up out of his chair as a regional director and walk over to his corner as Federal agent and ask himself what he thinks about it?Under this provision, would not the directors of every regional bank be obliged to stop their discounts to each member bank when its proportion of the whole had been asked for?Is it not true that solvent bankers may differ in their loan requirements very materially at the same time, and that therefore this provision will curtail the mobility of the reserves of each regional bank and defeat one of the purposes for which the bill is supposed to be drawn
Page 12, Lines 22 - 25. May the third director in Class B be a banker?Who is to decide whether Class B directors are qualified for office, under this provision?If two groups of bankers both desire to elect a Class B director who represents agricultural interests, which group takes precedence?How is it going to be possible, under the system of election provided for in the bill, for the three different fgroups to elect men engaged in the three different kinds of pursuits mentioned?
Page 13, Lines 7 - 14. Is it right and fair to allow the small institutions, which would have to assume the smallest liability in making deposits with the regional bank, to elect two directors out of three, while the largest banks who would have the most involved in the regional bank could only elect one director, and then probably only in conjunction with a number of small banks?Even if, through the jugglery of words, this could be figured out as being fair, is it safe to allow small institutions to elect two men, who would be obliged to handle immense amounts of money, all out of proportion with the natural business that has been done by these men before their election who could outvote the one who presumably may have had experience in large matters?
Page 15, Lines 2 - 12. Is it desirable or safe to have the chairman of the board of directors of a regional bank the principal representative of the Federal board, having control as he would, as agent of the Federal board, of all the gold and securities that he as chairman of the regional bank had placed with himself as Federal agent?Does not the only reason for such an outrageous condition lie in the attempt to bring this regional system into line with a central bank?
Pages 17 and 18. Sec. 5. If a regional bank has outstanding circulation, issued under the provision onf page 11, lines 12 to 21, and such circulation is based upon its capital, how is it going to handle such circulation in connection with the fluctuations of its capital?
Page 18 (all) andPage 19, Lines 1 - 11. Can foreign bankers, who are naturally suspicious of alien institutions and who deal with them without any feeling of patriotism, but merely for such profit as they can make out of them, ever be induced to place any confidence in a system of regional banks, some of which are capitalized beneath their notice, realizing that even such capital as the regional banks may have can be dissipated without the directors or management having the slightest control in the matter; and, further, that such dissipation may occur through the failure of member banks, of whose condition and financial standing they know nothing; and, further, that such failures might not alone result in reducing the capital stock of a regional bank, but might also affect other assets if the failed bank was indebted to it?How can institutions so organized be expected to take their part in the international markets of the world, in protecting our gold supply?
Page 19, Lines 13 - 25. The insurance fund suggested would only build up gradually during a course of years, even provided there were no failed banks. Such being the case, how is it going to be possible to use this insurance fund in case of failure of several banks whose total losses, that would have to be paid from the insurance fund, would exceed such fund?Would the precedence of failure be of any value to the depositors of failed banks?If not, in what possible manner could an adjustment be made, while in the very process of adjustment another bank might fail? Again, it is not known at the date a bank fails what the loss to depositors is going to be. If precedence of failure is to be used as a basis for adjustment, how is it ever going to be possible to determine how to proportionately divide up a changing insurance fund that does not equal the liabilities it is to cover?If precedence were of value, so that every bank would be induced to fail early and avoid the rush, suppose a second bank failed, and the amount of deficiency became known a year or so before the deficiency in the case of the first bank was determined: how would this adjustment be made?
Page 24, Sec. 10.Would it not be possible for a President, during a single term, to change the political complexion of the Federal board?This being true, would not this be a direct invitation to take advantage of such an opportunity, and would it not greatly multiply the power for disaster that any unfortunate choice for a President might entail?
Page 28, Lines 18 - 23. Is it not extremely dangerous to publish the maturities of the paper of a regional bank, which might make it possible for any member of the community who did not understand the banking business but who was of an inquiring turn of mind, to see in such figures at certain periods a condition that would appear dangerous to him and that might be the basis for starting a serious story concerning the regional bank? Would not the publishing of such statistics necessarily at times seriously handicap the directors in their operation of the bank?
Page 28, Par. (b). Is not the present banking system, under which bankers in one district, say, for instance, in the South, arrange directly to discount with bankers in what would be another district, say Chicago or New York, safer and better, carrying with it as it does an opportunity for the bankers in the discounting districts to be entirely familiar with the standing of those to whom they make loans, than the system proposed of permitting the Federal board to force regional banks to discount paper with which they are not familiar?Would not a central banking system be far better and much safer than either our present system or the proposed regional bank system? How could a regional bank whose assets are wholly based upon the capital and resources of the banks in its district, which is situated in a district such as that comprising the territory, say, East, West and North of New Orleans, pass through the season during which practically all of its member banks would be obliged to borrow from it, when such member banks as they are constituted today are obliged to borrow outside of this district during the crop-moving season in amounts approximating $200,000,000?Would not such a regional bank be obliged to borrow every year?
Page 29, Par. (c).As the dividend is cumulative to stockholders, this tax must be paid out of that portion of the profits that would otherwise fgo to the Government. Such being the case, would there be any objection whatever on the part of the directors, even those that represented member banks, to the tax suggested?Is it intended that this tax shall be paid to the Government?If so, would it not in reality be an operation that would be represented by the Government taking money out of one pocket and putting it into another?This being true, after the tax is paid, does not every one concerned stand in exactly the same relation as to profits that they did before? This being true, of what possible use is the tax?
Page 29, Lines 6 - 11. What member banks, under the bill, are required to keep the same reserves as the Federal reserve bank?Are not such banks the only ones that could be charged a tax, under the provisions of this paragraph as it is worded?
Page 29, Lines 18 - 23. Are the reserve cities and central reserve cities still to be maintained because it is realized that the regional bank system will not do the work required of it, as would a central bank?
Page 29, Lines 24 - 25.
Page 30, Lines 1 - 2. Is it wise or safe to make it possible for a banker who has applied for a loan and has been refused by an officer of his regional bank for good cause, to be able to go over the heads of the board of directors of the regional bank in his district and demand of a politically constituted board,– or, if you prefer to call it a board that may upon occasion be politically constituted,– and obtain the discharge of such officer?
Page 30, Par. (k).If the Federal reserve board should authorize member banks to carry Federal reserve notes as reserve, how would it be possible to retire such notes from circulation?
Page 30, Par. (l). Can Congress, under the Constitution, delegate legislative power such as is contemplated in this provision?
Page 31, Lines 16 - 21.What possible good could come from calls for information that might be made by the Advisory Council upon the Federal Board?If the Federal Board was acting improperly, would it not and could it not answer such calls for information with any sort or a report it might choose to make? Is not the power to call for information nullified unless those who make the call can check it up?Such being the case, would not this Advisory Council give a false sense of secutrity to bankers connected with the system?
Page 32, Lines 1 - 11. How would clerks in member banks and tellers in regional banks be able to check up their deposits as they were being made, and find out whether all the banks that items were drawn upon were member banks?How would it be possible for such clerks and tellers to keep themselves informed as to which member banks had failed?Again, and what seems possibly more difficult to answer, how would such clerks and tellers, after having looked up these items and found that they were drawn upon member banks, and had by telegraphic communication or otherwise found that such banks were still in existence, be able to determine whether such banks, though still in operation, were solvent?Is it intended that we shall have two systems for the collection of checks in this country: one for items drawn upon members and another for items drawn upon all other firms banks, corporations, firms, and individuals?
Page 32, Lines 12 - 25
Page 33, Lines 1 - 7. Is it wise to
allow members to borrow from regional banks without any limit in respect to their capital?
Page 32, Lines 22 - 25.Is it intended that this provision shall make it possible for all of those interests who may desire, to purchase and carry in warehouse for future sale and delivery, agricultural and other products?If it is not so intended, how, in view of this provision, can a regional bank prevent aiding speculators who desire to carry agricultural or other products for speculative purposes?If a regional bank in an agricultural district became so loaded up with bills of exchange issued against warehouse commodities that it could not meet the current needs of its district, is it going to be allowed to borrow from other regional banks and also curtail their ability to meet current business?
Page 33, Lines 8 - 15. Why are Federal banks authorized to make loans to member banks against bills of exchange which do not bear an acceptance, to the full amount of their capital, or to an unlimited amount if the intent of the Act is so construed, and are only allowed to loan to the extent of one-half the capital and surplus of a member bank when the bills of exchange bear the additional security of an acceptance?Is it not possible that this provision might seriously curtail the ability of regional banks to deal in foreign exchange?
Page 33, Lines 23 - 24.Why are National banks allowed to accept drafts drawn upon them having six months to run, when only drafts of that character having maturity within ninety days of the date of discount are permitted for rediscount?
Page 34, Lines 21 - 22. Does not this provision make it possible for regional banks to loan to member banks any amount, as far as their capital and surplus is concerned?
Page 35, Lines 4 - 8.Is it not possible and probable that general regulations, such as the Federal board might make in such matters, that might be necessary in one district might prohivbit business in another?What possible objection could there be to leave this power with the directors of each Federal reserve bank, instead of reducing them to mere figureheads?
Page 35, Lines 9 - 17.Is it right that a bank of issue should be allowed to buy commercial paper without restriction in the open market, which it might use as collateral to its note issues?Does it not detract materially from the security of the note issue?Explain how regional banks are going to work together in the foreign market.Which one of these banks would take precedence over the others, should foreign operations be necessary or advisable?Which regional bank would stand such losses as might occur through a necessity that might arise requiring the disposal of foreign exchange held by all of them?Would the bank handling the operation have to stand the loss, the other banks turning over their exchange to it, provided, of course, that any means is found to require a joint operation?Might it niot be fair to apportion the loss among all of the regional banks, whether they were carrying on a foreign business or not?If this were done, would it be fair to those who were not in the foreign business, to subject them to losses beyond their control?Again, would it be fair to a regional bank whose manager had handled his exchange in such manner as to enable him to take part in the operation without loss, to have to stand a portion of such losses as might occur through the operations of some other manager?With a number of regional banks, all doing a foreign business, would they not of necessity,– each working for himself, based upon the reserve situation and needs of member banks,– be working along lines directly opposed to each other?Is it not true that in the case of a central bank, all of these serious matters would be eliminated absolutely?
Page 35, Lines 18 - 25. Please explain how eight or twelve regional banks, all authorized to operate in the gold market, can do so effectively and economically? Would not a central bank solve all of the difficulties surrounding these important operations both economically and effectively?
Page 36, par (b). Is it not extremely dangerous to authorize a board that may be politically constituted, to purchase securities issued by political subdivisions?Should not the tendency to borrow, on the part of political subdivisions such as those mentioned in this section, be discouraged rather than encouraged, on general principles?What is to be gained through allowing regional banks to compete with member banks for business of this nature?Are not member banks situated in the political divisions mentioned, better able to judge, not alone of the safety of such issues, but as well of the advisability of encouraging their issuance?
Page 36, par (d). Are all classes of paper that regional banks are authorized to purchase intended to be covered in this provision?If not, what classes of paper are to have special rates applied to them, and which classes are to be exempt from this extraordinary measure?How could regional banks ever purchase foreign bills of exchange on rates established by the Federal reserve board?
Page 36, par (e). Please explain how eitght or twelve regional banks with branches abroad could operate effectively and economically “for exchange purposes”?There is no question but what a central bank could do business along these lines economically and with advantage to the country, but how is it going to be possible for eight or twelve regional institutions to dlo so? Would not the representatives of the different Federal banks have to work for the benefit of their own institutions, and would not this of necessity result in their operating against each other a large part of the time?
Page 37, Lines 5 - 15. If the Federal reserve board voted six to one against authorizing a regional bank which was over-extending itself improperly, from borrowing of other regional banks, and the one negative vote was cast by the Secretary of the Treasury, could he not, under the provisions of this bill, nullify the action of the Federal reserve board by transferring Government deposits from other regional banks to the one asking for itaid? If the regional bank asking for the accomodation was in a district whose vote might decide a rapidly approaching presidential election, might not the pressure upon the Secretary of the Treasury to help out such district be almost too great to be resistede?Would not such a condition of extension be more apt to occur in the fall, just before a presidential election, particularly if platform policies were involved that might represent serious difference of opinion, than at almost any other period, taken in connection with the fact that the fall is the time when the crops have to be moved and when most money is needed?Is it not true that this unlimited and unwarranted power would not be possible in the case of a central bank?Is it also not true that money deposited in a central bank by the Government, would be far safer than money that might be placed with regional banks in sums far exceeding the capital of such banks?
Page 37, Lines 16 - 22. Postal savings, representing the deposits of the people in the localities where they are made, and such people having established by law systems of State banks to carry on their business, is it right or justifiable to exclude State banks from acting as depositaries for postal savings, when such deposits are made against collateral satisfactory to the Government?May there not be many communities throughout the country where there are no member banks, which would result in taking the postal savings of such communities into other districts, and defeat the provisions of the postal savings law intended to keep such funds at home?
Page 37, Lines 24 - 25. On what ground do you justify the placing in the hands of a Federal board which may be made up of individuals who have no financial responsibility, and which as a board haves no financial standing, of circulating notes that are ready for issuance?Is not this the introduction of another piece of dangerous machinery, necessary in order to make a central bank of a regional Page 37, Sec. 16. Does the Government of the United States own t the gold and collateral that is to be held by the Federal reserve board as security for the note issues of regional banks?This question having been answered in the negative, does not the guarantee of these notes by the Government then become a fiat guarantee?In case of the failure of a regional bank that had outstanding a very large issue of notes, and it was found that the Fedearral reserve agent had disposed of the gold and security in his care, would not the United States be placed in exactly the same position in regard to the redemption of these notes that it would be if it had issued its own fiat notes pure and simple, without the intervention of any bank in between?
Page 38, Lines 1 - 9. Suppose member banks borrow of a regional bank until its reserves are exhausted, and such borrowings are desired in credits and not in circulating notes; that member banks draw drafts upon these credits, which are presented to the regional bank and, if paid, in gold or lawful money, would deplete its reserves. Would the regional bank, under this act, be authorized to pay such settlements in a Clearing House or direct in regional bank circulation, provided it were not desired by holders of the drafts?Even if regional banks were authorized to make settlements in such manner, could not those who received the circulating notes present them to the bank and demand gold and lawful money?Under such conditions, of what value to the regional bank would be its note-issuing ability?Will not this regional bank system, representing merely the consolidation of district demands, be apt to be simultaneous, instead of giving such demands a mobility country-wide, without friction, loss of time or expense, as would be true in the case of a central bank?
Page 39, Lines 19 - 24. Is it intended that Federal reserve banks receiving circulating notes of other regional banks shall pay the transportation charges upon such notes when returning them for redemption, or are such charges to be paid by the issuing bank?
Page 41, Lines 1 - 7. This provision states that the bank shall be charged with the amount of such notes, and shall pay such rate of interest on said amount as may be established by the Federal reserve board. Under this provision, would not a regional bank to be obliged to pay interest upon such notes as it might have in its own vault or in the vaults of its branches? Should not such interest be paid only upon such amount of circulation as might be outstanding? Who would this interest be paid to? If to the Government, what possible difference would it make whether any interest were paid or not, for if the regional banks were successful, the proportion of the profit that would accrue to the Government would be the part reduced through the payment of interest. The Government would not lose, therefore. Would this not mean that instead of the Government's profit from the regional banks being represented through payment of dividents alone, it would be divided up into three sorts of payment, represented by dividens, taxes and interest, all of which together would exactly equal the dividends? Under such circumstances, who would have the slightest objection to the paying of this interest, which is apparently intended to act to prevent over-expansion?
Page 44, Lines 7 - 13. Is it not true under this provision in connection with the first paragraph of section 13, that a regional bank situated in Chicago could forward exchange on banks, members of the New Orleans regional banks, to New York, for exchange purposes, in order to make New York exchange, if New Orleans eschange were at a discount? Is it not also truge that the New York regional bank could then forward these items to St. Louis for collection, if it needed St. Louis exchange? Is it not true that the St. Louis regional bank, requiring Chicago exchange in preference to New Orleans exchange, could then send these items to Chicago for exchange purposes? Is it not true that this circle might be kept up indefinitely, while New Orleans exchange was at a discount in these three cities? Is it not true that the regional banks would naturally handle the items in this way, for their own profit, as no one of them would feel that it was the one called upon to stand the loss in exchange? Is it not true that in the case of a central bank, it would have everything to lose and nothing to gain if it handled the items in this way, - for, if the Chicago branch forwarded the items to the New York branch, and the New York branch forwarded theitems to the St. Louis branch, and the St. Louis branch to the Chicago branch, etc., etc., the central bank as a whole would be out of money while the items were in transit, and it would therefore collect them as rapidly as possible? Is it not true that the currents of domestic exhange, due to seasonal operations, are well defined in this country, without any consideration of the banking system? Such being the case, is it not true that regional banks, in trying to meet these exchange conditions, would first use up their balance with other regional banks, and then be obliged to ship lawful money for their credit, which would deplete their reserves, although such lawful money would, of course, increase the reserves of some other regional bank? Is it not true that the case of a central bank, where the lawful money in every branch would count as reserve, there would be no necessity of such shipments? Is it not true, therefore, that a regional system would be much more expensive to the country in the handling of domestic exchange, as well as in handling foreign exchange?
Page 45, Sec. 18. Would not such a transaction be limited to $9,000,000 a month?
Page 46, Lines 3-13. Is it intended that such lawful money as might be deposited with the Treasurer of the United States by National banks, may be deposited by the Secretary of the Treasury in regional banks? If such authority is not intended, might not a large amount of lawful money be withdrawn from circulation? If the Secretary of the Treasury is considered to have authority to deposit such funds with the regional banks, would not this add unknown proportions annually of 700 odd million dollars that he would be able to place at his discretion in any regional bank in the country? Is it safe or right to the business interests and people of the United States, to place such absolute power in the hands of one man?
Page 47, Lines 4-5. If these circulating notes are issued under the same terms and conditions as National bank notes, is there any authority that could compel the regional banks to maintain a reserve against such issues?
Page 47, Lines 5-9. Does this provision, that United States bonds bought by a Federal reserve bank, against which there are no outstanding National bank notes, may exchange," etc., leave the power open to Federal reserve banks to act under the provision of Page 11, Section 8, Lines 12 to 21, ( ), and issue circulating notes against any bonds of the United States, whether they at present bear the circulating privilages or not, thus increasing the amount of notes that might be outstanding against United States bonds from $743,000,000 to $966,000,000., thus adding further to the power of the Secretary of the Treasury and also to the liability of the regional banks that might not need to be covered by reserve?
Page 47, Lines 14 - 17
" Lines 22-24. What possible use can there be of demanding that bankers hold reserves against time deposits, when they know the date of maturity of such deposits and are in position to make loans against them that mature in time to meet such deposits? Is it not really a tax upon time deposits that directly takes away from the bank the ability to pay the high rates of interest that depositors-have a right to expect when they agree to leave money on deposity for a stated length of time?
Page 48, Lines 3 - 25
Page 49, Lines 1 - 21. If the regional bank system works as well as a central bank would, and bankers sitated in cities where regional banks or their branches are maintained could go to such banks at a moment's notice and secure further till money to meet emergency, or further reserve money, why are banks in such cities required to keep a larger reserve than country banks? Is it not true that such country banks as were situated in towns where there was no regional bank, or branches, would not be able to obtain additional till money, or reserve money, in case of emergency as quickly as benks in reserve or central reserve cities, but would require several hours, and in many cases a full day's time, before being able to do so? Such being the case, is there any grounds whatever for recquiring banks in reserve and central reserve cities, to keep a larger reserve than country banks, unless, I repeat, it is realised by those who created this bill that the regional banks cannot do the work that is expected of them?
Page 49, Lines 22 - 25. Why should not member banks always maintain one-half of the reserve required in the Federal reserve bank in commercial paper, under this provision, as they could do so entirely without cost? This being true, do not the reserves recquired of banks receive themselves in three kinds: Cash in vault, credits with the regional bank, and segregated eligible paper? What difference does it make whether a bank segregates eligible paper in its own vault or in the vaults of a regional bank, as far as its value as a reserve is concerned? Is not this a dangerous provision, that might induce banks to feel that they were better protected than they really are, for the commercial paper could not, of course, be used as security to discounts, and until discounted would not really be of any value in case of emergency? Why should not member banks be obliged to discount such paper and have the proceeds credited to their reserve accounts with regional banks, and so be obliged to pay for this privilege, and make it to their interest to reduce the amount of paper so deposited at every opportunity? Is not this provision bad banking, which accomplishes nothing, other than to give a false sense of security?
Page 50, Lines 13 - 16. How is it going to be possible for a State bank becoming a member bank, to do business with any other State bank and at the same time borrow from a regional bank? Is it not true that many State banks are organized with capital that would not make them eligible to join the system? Is it not true that such State banks do business with other banks which might be authorized to join the system? Is it not true, if member State banks loaned to any State bank a member, if in the course of its business it were recquired to borrow from a regional bank, that beyond question it could be said that the State bank which was not a member bank was diriving indirect benefit from the system? Does not this provision make class legislation, intended only for the benefit of eligible banks as against all other banks and such part of our people as deal with them?
Page 51, Lines 5 - 9. Would not a central bank with such branches as it would be possible inexpensively to maintain in Alaska or other points outside the Continental United States, be able to deal with and protect member banks in such localities with more certainty and greater safety than is possible in the regional bank system contemplated.
Page 52, Sec. 20. Will not this provision operate unfairly as banks issue circulation in varying percentages to their deposits? Is it fair to any banks, and particularly to those who may signify their intention of going into this system, to discriminate against them in this manner, after they have made purchases of bonds at high rates in order to furnish circulation to the country, at questionable profit, with the privilege of counting their fiver per cent fund as reserve? Of what possible value to the new system of banking is this unfair requirement?
Page 51, Sec. 21. Is this provision intended to place the office of the Comptroller of the Currency under the Federal reserve board, instead of under the Secretary of the Treasury? If such is the intention, is it nullified by the provision in Page 27, Lines 11 to 19 ( )? In other words, if six members of the Federal reserve board voted to have the Comptroller make a special examination of some institution, and the Secretary of the Treasury voted against it, would not his power outside of the Federal reserve board enable him to overrule them? What possible excuse is there for giveing any one man such power?
Page 55, Lines 5 - 16. Is it not possible, but very probable, that an individual will not care to own stock of a National bank, under such circumstances, when he can invest his money in other ways that might bring him as good or a better return, when he knows that if he becomes dissatisfied with the management and fearful as to the standing of the bank, and, having too small an amount of stock, maybe, to control its operations, he desires to sell, that he canot do so without retaining his liability for sixty days? Is not this provision, through inducing fear on the part of the public to hold stock in National banks, going to do more harm than good?
Page 66, Sec. 24. Rather than tie up the funds of commercial banks in long-time paper of this character, would it not be far better to create a new class of institutions for the special purpose of loaning on mortgages?
Page 55, Sec. 25. How is a National bank to set aside a certain portion of its capital as security for business to be undertaken by a branch of such bank, and prevent liabilities assumed by the branch from applying to that portion of the capital supposed to be saved for this country? If it were possible to accomplish this, how could any National bank expect its branch to do business in a foreign county with the branch capital so limited, particularly in competition with banks having capital many times that of the entire capital of the National bank? Would not this provision, if it were possible to carry it out, which is doubtful, be apt to induce carelessness on the part of those managing the bank in this country as to those managing the foreign branch? Might not they be willing to have the foreign manager accept larger risks than might be warranted, if the profit appeared unusual and the liability was limited to a small amount of segregated capital? Of what possible use is such a provision?
Original Format
Miscellaneous
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Strong, Benjamin, 1872-1928
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Collection
Citation
Strong, Benjamin, 1872-1928, “Questions,” [1913], WWP18888, Benjamin Strong Jr. Papers, Woodrow Wilson Presidential Library & Museum, Staunton, Virginia.