United States. Congress. House. Committee on Banki.

Banking and currency reform. Hearings before the subcommittee of the Committee on banking and currency, House of representatives, charged with investigating plans of banking and currency reform and reporting constructive legislation thereon ... online

. (page 21 of 96)
Online LibraryUnited States. Congress. House. Committee on BankiBanking and currency reform. Hearings before the subcommittee of the Committee on banking and currency, House of representatives, charged with investigating plans of banking and currency reform and reporting constructive legislation thereon ... → online text (page 21 of 96)
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of deposits which any bank can have with the reserve association and
the amount of commercial paper which it can get rediscounted «

Mr. Endy. No.

Mr. BuLKLEY. But it is your judgment that the branch manager-
would it be of the reserve association ?

Mr. Endy. I presume so ; yes, sir.

Mr. Btjlkley (continuing). Would exercise the discretion?

Mr. Endy. Whoever is in authority.

Mr. BuLKLET. And would refuse accommodation to banks which
had not a sufficient balance ?

Mr. Endt. To warrant it ; that is my idea. Of course, under the
Monetary Commission's bill it assumes that the thing would work out
in that wa.j, because, in the first place, the banks are interested in
making the measure a success because it is their money that composes
the capital of the institution — of the reserve association — and they
would naturally keep a portion of their reserves in this central insti-

Mr. BuLKLET. What I am trying to arrive at is whether they would
keep enough of it so that you would have what you say you desire,
namely, a centralization of reserves. You must remember that, while
they would have the general incentive of trying to make the plan a
success, they have as against that the specific incentive of being
allowed interest on deposits.

Mr. Endt. Yes.

Mr. BxJLKLET. Now, is not that rather an important consideration
for a bank to get interest on its deposits where it can ?

Mr. Endy. I think it is -quite natural that they should want to
place their money where they can get some return for it.

Mr. BuLKLET. In other words, it would be natural that they should
try to carry as small a balance with the reserve association as they
possibly could?
Mr. Endy. Yes.

Mr. BuLKMiT. So that the tendency would be rather agamst cen-
tralizing reserves?


Mr. Thegoe. Do you not believe there are certain advantages which
come through centralization, and the ability to rediscount would be
far more attractive to the banks than even a small interest on their
deposits? When you take this matter you must, of course, take it
from all sides. You have got to consider the disadvantages with the
advantages ; and the advantage of a fixed market for the rediscount
of sound commercial paper is the crying need, in order to commercial-
ize our banks and make them commercial institutions.

Mr. 'KoEBLi'. Coming back to the question I asked a while ago:
If you remote the requirement of the Federal statute that banks must
report rediscounts will you not naturally get a rediscount market?

Mr. Teegoe. Not to the extent of legalizing the market, making
it a legal arrangement or a legal plan. You will never overcome a
certain amount of discredit that the large bankers now attach to the
rediscounts by simply removing that one feature ; and also you must
take into consideration this, that the regulation of banks for the
reasonable safet}' of depositors and clean banking requires unlimited
publication; that the public should be kept always appraised of the
conditions of banks. We are entitled to it and we should do it.

]\Ir. KoRBLV. Now, coming back to the question of rediscount, do
you think if Congress created a bank especially for the purpose of
]'ediscounting, the objection that exists in the minds of some bankers
against rediscounting would be obviated?

Mr. Teegoe. You would only be maldng one half of the thing by
creating a bank for that one function.

Mr. KoRBLY. That one function among others. And if. you cre-
ated a bank for rediscounting, among other things would that ex-
clude a bank from rediscounting through other banks?

Mr. Teegoe. Oh, no; they do it now.

Mr. KoRBLY. I want to ask you one or two questions. Is the Bank
of England a central bank, pursuant to the terms of its charter ?

Mr. Teegoe. The Bank of England, in its relation to other banks,
is largely a bank of rediscount, is it not?

Mv. KoEBLY. Of course, it is so, by the terms of its charter — ^by the
law of its creation.

Mr. Teegoe. That I can not say. It may be such by custom.

Mr. KoRBLY. It is not the largest bank in England, is it?

Mr. Tregoe. I understand that it is not the largest commercial
bank : but you understand why that is.

Mr. KoEBLY. It occupies its position naturally and pursuant to
natural laws, rather pursuant to any parliamentary conditions con-
tained in its charter, does it not?

Mr. Teegoe. I should say it is a customary bank. It has devel-
oped under the customs of that country as such an institution would
grow here. It is not the largest bank in England, for the reason
that ]t IS not the bank of individuals, it is the bank for bankers, just
as we would have such an institution here. We do not want a com-
petitive institution.

Mr. KoRBLY. Could not you or I open an account with it «

Mr. Endy. Yes.

Mr. KoRBLY. Yes.

Mr. Tregoe. I mean it is a customary bank, you understand.

Mr. KoEBLY. Coming back to the centralization of the reserves—
my whole purpose is that our minds may meet and that we mav


understand each other more thoroughly— the advantage of central-
izing the reserves IS that the reserves may be used as a cSmmon fund?

Mr. lEEGOE. That they may be used as a common fund.

Mr. KoBBLY. That the money may flow where nature demands it,
where demand anses for the protection of the credit machinery of
the people of the United States; is that your understanding?

Mr. Endt. Yes. ^

Mr. Tkegoe. Yes.

AiiT^""' •?°.'^^J- ^ T"^* to insist upon an answer to this question:
Why It It IS desired that the metallic reserves of the bank should be
knit together so that protection may be given to the banking insti-
tutions o± the country, otherwise called the mechanism of exchange
IS it not also equally desirable that the two-name paper or commercial
assets should be knit together for the protection of the mechanism of
exchange? I should like to have you explain why one should be
done and the other not done.
Mr. Teegoe. Two-name paper is not a reserve.
Mr KoEBLY. Oh, yes, it is. It is the biggest part of the assets of
a bank.

Mr. Teegoe. It is part of the assets, but it is not a legal reserve of
the bank.

Mr. KoKBLT. Let us do away with the term "legal reserve" and
consider banking as it is. The biggest part of the assets of a bank
that makes it solvent is its possession of sound commercial paper.
Mr. Teegoe. That is an asset.
Mr. KoEBLY. It is an asset also.
Mr. Teegoe. Yes; and it is a reserve.
Mr. KoEBLY. Gold is an asset also?
Mr. Teegoe. Yes ; and it is a reserve.

Mr. KoEBLY. So is standard commercial paper. We are differen-
tiating on things that are unimportant. What I want to know is,
why should not the commercial assets of the bank be united for com-
mon protection just as well as the metallic assets should be united
for common protection ?

Mr. Teegoe. I do not see how you would effect that. The legal
reserve of the bank now is the lawful money. Two-name paper of
any character, commercial paper, is not lawful money.
Mr. KoEBLY. Certainly not.

Mr. Teegoe. The reserve of the bank now is lawful money.
Mr. KoEBLY. Yes; but if you should pick out the one thing that
they could lose with the least harm, you would say that they should
lose their lawful money rather than their commercial paper? It is
19 parts out of 20 of the things that make a bank solvent, is it not ?
Mr. Endy. How do I understand you ? I do not quite catch that

Mr. KoEBLY. A banker is obliged to keep a certain percentage of
reserve among his resources. Part of that is metallic and part is
commercial paper. There is no reason at all why these elements
should not be regarded as the same thing, simply as a common
fund; absolutely no reason. I want to get at the reason why the
commercial paper in the banks of the Nation should not be considered
as a common fund, if gold and lawful money' is so regarded.
76112— PT 3—13 2


Mr. Teegoe. Anything that is a reserve is the same thing, whether
it is Government bonds or two-name paper or single-name paper or

The Chairman. I want to suggest, when you shall have finished
on this particular phase of the question, that, in niy judgment, we
will make more progress and have the record more intelligible if we
will first exhauht one phase of the matter before we get off on an-

Mr. Joyce. Mr. Chairman, if we attempt to exhaust anything, we
will be here all through the extra session.

Mr. KoEBLT. I think we have made some progress toward getting

The Chairman. I make that sugge^stion because it is a little con-
fusing to an uninitiated mind like mine to jump indiscriminately
from the definition of foreign banking to reserves, and from issues to
organization, etc. I would like to see each phase in an orderly way
discussed as completely as may be before we get on those abstruse
questions and fine definitions.

Mr. KoRBLY. Now, if I may continue, I want to take up your ques-
tion of the elasticity of the currency. Will you mind telling us
briefly what you understand by elasticity of the currency ?

Mr. Teegoe. Elasticity of the currency is tlie ebb and flow of the
currency according to currency requirements.

Mr. KoEBLY. That is, that bank notes shall go out over the counter
and come back to be paid in the natural course of trade ?

Mr. Teegoe. That they shall go out over the counter and come
back to be paid according to the natural requirements.

Mr. KoEBLY. If you want an elastic currency, are you convinced
that you will get it by requiring a fixed metallic reserve against it ?

Mr. Teegoe. Oh, yes; surely, if the fixed metallic reserve is in a
proper proportion. There should, in my judgement, be no currency
issued that is not based partially on a metallic reserve of at least one-
third. I take that as an arbitrary proportion.

Mr. KoEBLY. Let us say we fix it at one-third, and the demand
arises because of an immense crop and because of the commercial
activities of the people for a large amount of currency ; there should
be an expansion of currency to meet sound conditions in commerce.

Mr. Teegoe. Yes.

Mr. KoRBLY. Are you not restricted because of the fact that gold
will not expand ?

Mr. Teegoe. The large contraction of commercial credit will con-
trol, and, also, the fixed rate of interest figures in the elasticity of
the currency. Currency rises and falls according to the fixed rate of

Mr. KoEBLY. Yes; and you can not expand that currency if you
have not got any more gold, and you can contract only by raising
the rate of discount.

Supposing that all the civilized countries in the world are enjoy-
ing unusual commercial activity of a sound kind— not speculative—
the exchange of commodities produces an immense demand for cur-
rency ; you can not get an immediate response of more gold in order
that you may have 33 per cent of gold or lawful money against your
expanded currency. It strikes me that your limitation of 33J per
cent IS an absolute limitation of the expanse of currency.


Mr. Tbegoe. Your rise and fall in discount rates is where your
stock o± gold will rise and fall according to the natural laws of

Mr. KoEBLY. Where will the gold come from ?

Mr. Teegoe._ Where does it come from in England— if the chair-
man will permit me to come back to that ? When England loaned us
a very large portion of her gold stock to meet the situation in 1907
she immediately replenished her gold stock by raising her rate of

Mr. KoEBLT. It came from some other country.

Mr. Joyce. This country had really much more than any other

Mr. KoEBLY. This is what I wanted to get an idea about, so that
you could obviate a difficulty that arises in my mind. A fixed me-
tallic reserve is contradictory to the promise to pay on demand and
is contradictory to expansion and contraction. If you have to have
33^ per cent of gold as part of a basis of your issue and have not the
gold you can not expand for the want of gold; or, to state it in
another way, if there should be mistrust in the minds of the people-
not a well-founded mistrust, but an ill-founded one— as to the sol-
vency of the banks and their ability to pay on demand, and a con-
siderable number of people should go to the banks and withdraw
their accounts and take down lawful money for it, there would be
a shrinking of reserves at a time when banking ought to be expand-
ing to meet the sound commercial needs of the country. Would not
a fixed reserve be the greatest obstacle to the things you desire and
advocate ?

Mr. Teegoe. It would not prove an obstacle, I am sure. If our
reserves are consolidated at that one reservoir, that controls it. That
is where the advantage of the central institution comes, because it
acts as a unit, controlling all the regional or district organizations.
I think that the amount of gold that can be consolidated in that in-
stitution would be a basis sufficient for reserve of any possible cur-
rency that this country would need.

Mr. KoEBLY. If the law requires the banks to keep 33^ per cent
against their outstanding obligations and the course of business is
such that their" possession of lawful money is decreasing because peo-
ple are taking it away from them and at the same time business de-
mands expansion of credit, do you not see any limitation arising
from a fixed reserve ?

Mr. Teegoe. No ; not to my mind.

Mr. Endy. What would these people, who withdrew lawful money,
do with it, would they hide it ?

Mr. KoEBLY. They probably would take a strong box and put it
in there and put the key in their pocket.

Mr. Joyce. That is a condition we want to make impossible; we
want to make it impossible to have a condition of that sort arise.

Mr. Teegoe. In any system what we want to do is to keep the
deposit dollar and the gold dollar on a parity; to give to both the
same purchasing power.

Mr. KoEBLY. That is absolutely necessary if you are going to have
sound banking conditions.
Mr. Teegoe. Yes ; to keep the two dollars on a parity.


Mr. KoRBLY. But I think I see where the keeping of a fixed reserve
is an obstacle to the doing of that thing. I do not case to press
the point. Perhaps Mr. Glass would like to take it up.

The Chairman. Mr. Tregoe, I would, if I may, get back to the
question of organization for a little while. You were speaking of
the desirability of developing our foreign trade through our pro-
posed better banking facilities. Are you disposed to insist that we
can not do that without a central bank ?

Mr. Tregoe. Oh, no ; that is simply an incident. We feel that that
will be one of the consequences of the central institution, but more
immediately the consequence, Mr. Chairman, of commercializing our
banks, of making them commercial banks and not speculative banks.

The Chairman. We now have in our national system about 7,300
independent units.

Mr. Tregoe. Yes; just about 7,300.

The Chairman. Do you not think it would be a vast improve-
ment upon the present system if we could associate, in regional asso-
ciations such as have been mentioned, those banks in the various
proposed districts?

Mr. Tregoe. According to our second suggestion here as to dis-
tricts ?

The Chairman. Yes.

Mr. Tregoe. Regulating that association within itself?

The Chairman. Within itself; yes.

Mr. Tregoe. Yes. That is our second suggestion, and we believe
that the capstone of that is the central idea.

The Chairman. Then if this Congress and this administration does
not yield to your proposition for a capstone, you think it would be
a vast improvement upon existing conditions if we could organize
these regional reserve banks?

Mr. Endy. With the clearing house feature fully developed.

The Chairman. With the clearing house features fully developed
and broadened.

Mr. Tregoe. With the depository for reserves.

The Chairman. In the central city?

Mr. Tregoe. In the central city.

Mr. Endt. Yes.

Mr. Tregoe. With the power of issue to each regional district ?

The Chairman. Yes; the power of issue in each regional bank.

Mr. Tregoe. Legalizing rediscounts.

The Chairman. Yes.

Mr. Tregoe. That is good progress.

The Chairman. You think it would be a vast improvement on
existing conditions, then, do you?

Mr. Endt. Indeed, I do.

Mr. Tregoe. It would, in our judgment, be an improvement on ex-
isting conditions.

Mr. Joyce. Any system should contemplate taking in every in-
stitution that is in the banking business ; otherwise it will fall down,
Mr. Chairman.

Mr. KoRBLY. Those within certain classifications?

The Chairman. It would not fall down as badly as we are already
fallen down, would it?


Mr. Endt. It would very much enhance the difficulties if all the
banking institutions were not obliged to enter it.

The Chaieman. How can they all be compelled to enter it«

Mr. Endt. Th^ can all be compelled

Mr. Oke. By offering facilities which independent bankers would
not have.

Mr. Endt. Congress was entitled to prevent, through taxation, the
State banks from issuing currency, and there ought to be some means
found by Congress to induce them.

The Chairman. You are taking the view of Mr. Roosevelt, then,
that if a thing is not in the Constitution, some way should be found
by construction to put it there?

Mr. Endt. What I am trying to get at is that it would benefit the
country and everybody if all the banks were under one regulation.

The Chairman. But you realize that we must move within pre-
scribed limits in accomplishing whatever we may develop ?

Mr. JoTCE. If you give these reserve banks the right of issue, I
believe these other things will follow, and the other banks will take
out national charters.

The Chairman. Yes; but it will have to come that way. Upon
the question of issues, Mr. Tregoe at first insisted that the whole ex-
istence of new legislation would depend upon giving the exclusive
monopoly of issue to a single institution. I understand now that
you modify that, and say that next to that you would give impor-
tance to the regional reserve bank ?

Mr. Tregoe. I would say that is an alternative, Mr. Chairman.
I do not consider it a good alternative, but it may be within your
views an expeditious alternative. I consider that the central institu-
tion should be the bank of issuance.

The Chairman. But what did the Monetary Commission do
with it?

Mr. Tregoe. It gave the right of issue to the central institution.

The Chairman. How do you interpret section 65, which says :

65. There shall be no further issue of circulating notes beyond the amount
now outstanding by any national bank. National banks may, if they choose,
maintain their present note issue —

and so forth. . , u •

In other words, it continues to each individual national bank their
present issues.

Mr. Tregoe. Under that plan, Mr. Chairman, the bank notes were
not to be immediately recalled and retired, but it expressly states, I
am sure, if you will read it, that just as soon as the notes then out-
standing were presented for redemption, they should not be reissued.
The Chairman. That is true. j. xu i, i

Mr. Tregoe. It provides for the gradual retirement ot the bant
notes, and provides that they shall not reissue any more notes.

The Chairman. A gradual, permissible retirement; but under that
section the outstanding circulation could remain out mdefamtely, ana
would remain out just as long as the individual banks considered it
profitable to keep them out.
Mr Tregoe. But they could not reissue any more i
The Chahjman. Oh, no; but they might never retire the existmg
issue; is not that a fact?


Mr. Teegoe. Oh, yes ; that is a fact. But you would not call that
issuance ?

The Chairman. I would call that issuance in a sense, because it
would confirm an existing issue — of how many millions of dollars?

Mr. Tebgeo. Seven hundred millions.

The Chairman. Of some $750,000,000. I should think that was a
pretty broad power of issuance.

Mr. Tregoe. You could not call that issuance. That would be a
perpetuity. Just as soon as they were retired, they could not be reis-
sued ; no more could be issued.

The Chairman. That could be very easily provided in a regional
reserve-bank system — that they might have the exclusive right of
issue hereafter.

As to the suggestion that regional reserve banks should have the
right of issue to a limited extent, and that all issues above that per-
centage should be confided exclusively to some treasury board or
central institution here at Washington, how would that strike you ?

Mr. Tregoe. Would you say that again, Mr. Chairman ?

The Chairman. Upon the question whether the regional reserve
banks — say that there are 20 or 25 of them, as you gentleman sug-
gest — should have the exclusive right of issue up to a certain amount,
but beyond that percentage the right of issue should be with the
treasury board, what have you to say?

Mr. Tregoe. Mr. Chairman, of course I do not know how the
committee would answer that question officially.

The Chairman. That has been merely a suggestion.

Mr. Tregoe. I should say personally that would be playing. I
feel that the halfway policy of the Government, of not being and
yet being in the banking business, is not good.

The Chairman. You want to put the Government in the banking
business, then, do you?

Mr. Tregoe. I personally feel that we ought to have a central in-

The Chairman. With all the powers of commercial banking?

Mr. Endy. No.

Mr. Tregoe. I personally feel that a central institution should be
outside of the Treasury; should be an independent institution; but
of course, necessarily and wisely, there should be that supervision
upon the part of the Government, but not the introduction into the
Government of a halfway policy. I really believe that we would
prefer that the Treasury should be converted into a bank in order to
have these facilities, and let it be a Government bank.

The Chairman. All banking facilities ?

Mr. Tregoe. To discount and rediscount commercial paper.

The Chairman. To convert the Treasury into a bank?

Mr. McCreary. Yesterday it was said in substance by Mr. Shaw,
who was formerly Secretary of the Treasury, that if a central bank
was established Wall Street would have, and for 50 years would
have, a cmch" on the monetary system of the country. Do you
believe that? •' •'

Mr. Tregoe. I do not believe that. I think ex-Secretary Shaw is
rather unsound in that position. And, Mr. Chairman, I want to
say, it you please, that what I have remarked about the Treasury
going into the banking business, is simply personal and not official.


Mr. End^As the chairman of our committee, I would state that
we are opposed to that. ' ^ ^'^^^

Mr KiNDEED. Mr. Chairman, may I ask the gentleman a question
about something that was said a moment or twf ago? I wo2ld like
for my information, of course, to ask the gentleman exactly what he

Z^^^ ^r^f^ ^^"* l^ T^^^ ^.' playing^ith the questiohTf a so
called Federal or central board of issue were empowered to issue
under certain conditions representing the regional reserve banks I
imderstood you to say that you would, and, in all seriousness, I want
to know your opinion about It. Why would it be playing?

Mr. Teegoe. Because I personally feel that there should be this
centralization of these functions, such as we have guaranteed in our
recommendations here, and that it should be performed by a central
institution; that there should be a coordination of the regional banks
or agencies m a central body, so that there should be uniformitv of
movement through that control. But to simply have a board for one
purpose only is not going far enough in this matter, to my mind
We agree about the regions, do we not? We agree about the districts
very largely, and we agree very largely about them except in the
matter or the currency issue.
Mr. Endt. Well, we are on that question now.
Mr. Teegoe. All those regional functions, if they are consolidated
together in that central institution, in which they may be all super-
vised and brought together with that central institution, means a
sole institution for issuing the currency, based upon a metallic re-
serve and sound commercial paper that flows into it, and is, to my
mind, almost the acme of a good banking and a good currency sys-
tem. But if you have these districts all through the country, acting,
- as it were, independently, where is the coordination going to come?

Online LibraryUnited States. Congress. House. Committee on BankiBanking and currency reform. Hearings before the subcommittee of the Committee on banking and currency, House of representatives, charged with investigating plans of banking and currency reform and reporting constructive legislation thereon ... → online text (page 21 of 96)