United States. Congress. Senate. Committee on Bank.

Banking and currency. Hearings before the Committee on banking and currency, United States Senate, Sixty-third Congress, first session, on H.R. 7837 (S. 2639) ... In three volumes online

. (page 64 of 171)
Online LibraryUnited States. Congress. Senate. Committee on BankBanking and currency. Hearings before the Committee on banking and currency, United States Senate, Sixty-third Congress, first session, on H.R. 7837 (S. 2639) ... In three volumes → online text (page 64 of 171)
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Mr. BucHOLz. $1,000,000.

Senator Reed. And you have your circulation on that ?

Mr. BucHOLz. Yes, sir.

Senator Reed. You buy these bonds and have the circulation
privilege ?

Mr. BucHOLz. Yes, sir. . . .

Senator Reed. If you are allowed to continue a circulation privi-
lege, you do not want to keep your bonds?

Mr. BucHOLz. No, sir. If we are going to have a new system, 1
would like to start new. .

Senator Reed. Suppose we do have a new system which provides
that there can be other money issued, and yet suppose, as a part of


that system, we were to maintain substantially the present system
and build upon it, allowing the national-bank notes to still continue
to exist, issuing to them as we do now. Do you think that we ought,
under those circumstances, compel you all to surrender your bonds?

Mr. Btjcholz. That would be an entirely different matter.

Senator Eeed. That is what I am speaking about.

Mr. BucHOLz. If you build upon the present system and extend its
usefulness and ability to serve the public, certainly I should be glad
to continue under it and retain the bonds.

Senator Eeed. All that it is proposed to do, with the exception
of the provision for the retirement of one-twentieth of the national-
bank notes each year, is to provide a system by which the bank can
get additional currency, which is supposed to be obtained only for a
short time, on paper that liquidates itself. That, of course, would
not impair the value of your national-bank circulation?

Mr. Btjcholz. No ; except that the redemption is not in cash, but
that is in 3 per cent bonds.

Senator Eeed. I am talking about leaving out the 3 per cent bonds.
You mean the 5 per cent from year to year ?

Mr. BuGHOLz. Yes.

Senator Eeed. And let you go along as you are now, you would
be satisfied, as far as your bonds were concerned. We have about
$700,000,000 of bonds at about $700,000,000 of circulation.

Now, if we provide that these bonds, when they are redeemed, 5
per cent of them each year, that the Government should take them
at par

Mr. BuoHOLz (interposing). And pay cash?

Senator Eeed. And pay cash. That would-

Mr. BucHOLz (interposing). That would overcome my objection;
yes, sir.

Senator Eeed. That would overcome your objection?

Mr. BucHoiiZ. Yes, sir.

Senator Eeed. There is nothing insurmountable in all that?

Mr. Btjcholz. Not that I see.

Senator Hitchcock. Have you any 2 per cent bonds to secure
deposits ?

Mr. Btjcholz. No, sir. We have threes to secure deposits, if I air
not mistaken. I think the United States deposits are covered by
3 per cent bonds.

There is just one more point I wish to discuss, and then I am
through. That refers especially to the country banks in Nebraska.
That relationship has been built up from early times. For instance,
31 years ago I was a country banker and so remained for 20 years,
and I lived in a small town, grew along with it, brought together
the local capital that could be obtained, and borrowed from the out-
side all we could, so that that meant building up a town and a com-
munity. It is an agricultural community. It has been very pros-
perous. If _ the people have surplus money, the banks will reflect
that _ condition. The paper that is made there, to a large extent,
consists, for instance, of paper given by cattle feeders— steers to be
put in a feeding lot and fed— which will take perhaps four or five
or six nionths to mature. That is a very important part of Ne-
braska's industry, and such paper as that would not be eligible under
this proposed law.


Senator Pomeeene. Take the average country banker, such as you
have out in your agricultural communities. What portion of their
loans would you say were made each month ?

Mr. BucHOLz. New loans?

Senator Pomerbne. Yes; new loans.

Mr. BucHOLz. "Well, a very small per cent at certain seasons, and
a very large per cent at other seasons.

Senator Pomerene. Can you give us any estimates ?

Mr. BucHOLz. Probably 80 per cent of the loans in the country
bank, normally, are made in the fall of the year.

Senator Pomerene. During what months of the year ?

Mr. BucHOLz. From September to January.

Senator Pomerene. That is four months.

Mr. BucHOLz. Yes; and they run over until the spring months.

Senator Pomerene. Yes; I understand. You say 80 per cent of
the loans are made in four months. What portion of that 80 per
cent is made in each of those four months ?

Mr. BtrcHOLz. I am not able to say.

Senator Pomerene. Of course, it would be distributed along dur-
ing all of that time ?

Mr. BucHOLz. Yes.

Senator Pomerene. That would be gradually maturing?

Mr. BucHOLz. It would, depending a good deal on conditions.
Some years a farmer will hold his wheat and will not sell it in
August; he will sell it perhaps in December, and he may hold it
imtil March, and borrow the money to hold the wheat.

Senator Pomerene. All of which would seem to indicate to me, at
least, that the notes held by the bank were constantly maturing.

Mr. Btjcholz. Certainly, but they are renewed. They renew
them ; they are not isaid.

Senator Pomerene. Very well. There would not be any time dur-
ing the year, would there, when the bank would not have a consider-
able amount of paper that was maturing in from 90 to 120 days ?

Mr. BucHOLZ. Yes; it would mature right along, but the country
banker knows to a certainty he can get that money at that time.

Senator Pomerene. That paper then could be used for discount
purposes, or rediscount purposes under the provisions of this bill ?

Senator Hitchcock. I think not. Senator Pomerene. The defini-
tion of commercial paper is paper which grows out of the commer-
cial transaction. It liquidates automatically. This paper which Mr.
Bucholz refers to does not liquidate.

Senator Pomerene. I had in mind that there might be some pos-
sible change in the definition of commercial paper here. I was ad-
dressing my questions rather to the fact that your paper was matur-
ing from month to month.

Mr. Bttcholz. In my own bank, for instance, our paper is paid
off at the rate of $1,000,000 a month. That has been the record for
three years ; that amount actually paid, and we would take care of
ourselves very nicely under this provision.

Senator Pomerene. I would like to ask you another question.
Have you figured out the advantages and disadvantages of the pro^
posed measure, as compared with the present system, so far as they
relate to your own bank?


Mr. BucHOLz. Yes.

vSenator Pomerene. Have you those figures with you ?

Mr. BucHOLz. No ; I left them at home.

Senator Pomehene. I would be very much pleased to have you
furnish them, and have them incorporated in your testimony.

Mr. BtJCHOLZ. I would be very pleased to do that. Unless you
have some other questions, gentlemen, that is all I have to say.

Senator Beistow. I would like to inquire what defects do you
think we have in our present system that ought to be remedied ?

Mr. BucHOLz. Well, on the whole, 1 think we have a yerj good
system. We have a system where the circulation of the banks that
passes as money. No one questions it, and has never questioned it,
to my knowledge. The only possible criticism I can think of would
be that at certain periods, either by unusual business expansion or
overspeculation we find a rigidity in the volume of money we have
to use, and of course my own idea woul^ be to follow out the natural
consequences of an expansion of the national banking system to the
extent of having a central credit reservoir where temporary addi-
tional money might be obtained.

Senator Bristow. WHiat you would like, as I understand it, would
be to have some provision made whereby you could get additional
currency when it is needed ?

Mr. BucHOLz. Yes.

Senator Beistow. On the assets of your bank?

Mr. Bucholz. Yes.

Senator Bristow. And then when it was not needed that would
normally retire?

Mr. Bucholz. I would fix it so that the retirement

Senator Bristow (interposing). And you think it would be much
better for the business of your part of the country if a provision of
that kind could be made without breaking up the present banking
provisions that have grown up in the past half century ?

Mr. Btjcholz. You have explained my idea exactly, I think.

Senator Bristow. Suppose that a provision was made so that your
bank could go to the subtreasury, that a subtreasury should be
located at Omaha — I believe you have no subtreasury there now —
suppose a subtreasury was established there and during these periods
of stress you could take the assets of your bank there and upon your
own credit, hypothecating your assets, get the credit you needed by
paying a certain tax on it while it was used, and when it was through
this would come back into your bank and be retired and your assets
would be returned to you. Would that relieve you of the embarrass-
ment you have now ?

Mr. Bucholz. Yes; I think so; and if you extended the present
central reserve cities to five instead of three and confine the privilege
to just the central reserve cities under certain restrictions it would
accomplish the purpose, in my judgment.

Senator Bristow. Suppose we had just one regional bank and we
had a Federal bank which received the Government deposits and
which would be a bank of issue and discount and that bank would
have branches located in the various commercial centers of the
country and you could go to your branch of that bank and get cur-
rency upon your assets?


Mr. BucHOLZ. I do not like that idea so well. Perhaps that is due
to some prejudice I have had for years against the Government en-
gaging in the banking business. My belief is that the Government
should pass the laws, provide what kind of banking business should
be done, and let individuals do the banking business under proper

Senator Beistow. But the Government then would be running
only 1 bank instead of 12. The Government now is establishing 12
banks and is going to run 12 banks.

Mr. BucHOLz. I think the fewer it runs the better it will be for
the country.

Senator Bristow. If this board created here or this board in Wash-
ington has 12 banks scattered all over the United States at long dis-
tances — suppose we had one bank here in Washington which they
managed and which performed all the functions that these 12 would
perform, and that was done without requiring the banks to put up
any capital stock, and any bank that kept its reserve there could
get relief whenever it wanted it, as I have stated, do you not think
that would simplify this very much?

Mr. Bttcholz. I do. That is in line with the expansion of our
present system, with some additional safeguards.

Senator Bristow. And you think that strengthening the present
system takes care of this apparent defect?

Mr. BucHOLz. Yes, sir.

Senator Bristow. We have had quite a discussion here in the last
few days in regard to these country checks. The gentlemen who
preceded you, and one or two gentlemen who were here yesterday,
are anxious to have the check system discredited, to a certain extent,
in order to reduce the number of the checks. You say you have been
a country banker and now you are a reserve banker?

Mr. Bttcholz. Yes, sir.

Senator Bristow. Let us have your opinion about the method of
banking by country checks, of refusing to give the customers of
country banks the use of country checks. What do you think the
general effect is on the business of the country in a case of that kind ?

Mr. Bttcholz. I think the general effect is very good.

Senator Nelson. You mean the general effect of having a lot of
checks afloat?

Mr. Bttcholz. Of using checks

Senator Nelson (interposing). Instead of drafts?

Mr. Bttcholz. Yes. That practically amounts to the same thing,
checks or drafts, because it is not always convenient to get a draft.

Senator Eeed. I want to ask this witness one more question. Take
the banks in your town; is the amount of their capital stock any real
index to the size of the bank?

Senator Nelson. You mean the volume of business they do?

Senator Eeed. Yes; the volume of business they do, and the profits
they make.

Senator Nelson. Any real or certain index?

Mr. Bucholz. Yes; I believe the capital and surplus would be.

Senator Eeed. The capital and surplus?

Mr. Bttcholz. Yes, sir.


Senator Keed. You frequently find a bank, do you not, with a
small capital and a large surplus, which is really a bigger bank and
makes more money and handles more business than another bank
with a larger capital and without a surplus.

Mr. BucHOLz. That is quite true.

Senator Eeed. Now, if the capital stock of this central bank is to
be contributed by the banks, should it not be based upon capital and
surplus, instead of upon capital alone?

Mr. BucHOLz. I think it would be very unjust to base a contribu-
tion of capital merely on the capital of the bank contributing.

Senator Bristow. I think this matter of country checks is a very
important matter, and you seem peculiarly fitted to discuss it. Now,
if you will, tell us in what way it has been a good thing for the
country and for the banking business as a whole ?

Mr. BiTCHOLz. When I was a country banker, I would tell the
farmers, when they came in to buy some goods, that they ought to
leave their money at the bank, deposit it in the bank, take a check
book and pay their bills in that way.

Senator Beistow. With checks?

Mr. BucHOLz. With checks. That is about the only thing that ap-
pealed to the farmer. He did not have to carry the money in ms
pocket and take a certificate and come to the bank every time he
wanted a little money. That has been generally done throughout the
agricultural West. That is a part of the development of that country.

Senator Nelson. But you overlook the point we are after. This
inquiry does not cover that kind of check. That is the other class
of checks. For instance, the merchant in Nebraska, in an interior
town, goes to Chicago and buys a bill of goods there, and instead of
remitting to the wholesale merchant in Chicago by draft he sends
his check on his local bank, and that is the kind of check we refer to.

Mr. BcjCHOLz. Of course, the ideal condition is for a merchant to
go to his bank and buy a bill of exchange payable at the place where
he owes the money. But we do not come to that. We do not ap-
proach the ideal condition. For instance, in Omaha some of our
large accounts are 10 blocks away from us. They do not want to
come to the bank and buy a draft. They make out a check and send
it away.

Senator Nelson. When that check comes back what do you do
with it? Do you charge for remitting that money?'

Mr. Btjcholz. Yes; we make a charge of one-tenth.

Senator Nelson. A merchant in Chicago has a check from one of
your Omaha merchants upon your bank, the Chicago bank sends it
to you, and you charge for that?

Mr. BucHOLz. Yes; we do.

Senator Nelson. And does that charge come out of — it comes out
of the bank that sends it to you, primarily ?

Mr. BucHOLZ. Primarily, and sometimes ultimately; sometimes
they absorb that exchange.

Senator Bristow. That is their business; that is not the Govern-
ment's business.

Mr. BucHOLz. Not a bit.

Senator Bristow. Not any more than to fix a law which would fix
a limit as to the time for giving a cash discount, if payment is made in
10 days?


Mr. BucHOLz. It has not a thing to do with a Government regu-

Senator Beistow. The Government has not a thing to do with it.

Mr. BucHOLZ. This exchange charge ultimately comes out of the
man who owes the money. It comes out of him ultimately, anyway,
and it ought to.

Senator Bristow. My office is across the hall in this building. I may
owe somebody in New York. He may have on his letterhead " Coun-
try checks not received," but I do not want to go down town and buy a
draft, and so I write a check and let him turn it down — it is not con-
venient for me to go down town — and if he does not want to do that he
may send it back.

Mr. Bucholz. Certainly ; that is a matter between you.

Senator Bbistow. If we should undertake to make it impossible for
me to write that check we would interfere with a development which
has accommodated itself to the convenience of the entire business
public of the United States?

Mr. BucHOLZ. So much so that 92 per cent of it is done that way.

Senator Nelson. Go a step farther in that direction. This bill
proposed in its original form to have the regional banks clear those
checks as a clearing house ; that is, those checks would be taken there
and deposited, coming from a member bank. They are to be de-
posited in the regional bank and credited as cash and immediately
charged up to the member bank. What have you to say about that ?

Mr. Btjcholz. The effect of that is to penalize the members of the
Federal reserve bank and put them in competition with other banks.

Senator Nelson. The effect of it is to deprive you of your exchange

Mr. BucHOLz. Exactly ; and it also puts a penalty on our belong-
ing to the Federal reserve bank.

Senator Beistow. That is, if you did not find it convenient to per-
mit your customers to pay these accounts by check on your bank the
tendency would be for them to do business with a bank that would
permit them to do business in that way?

Mr. Btjcholz. Exactly.

Senator Nelson. Suppose a merchant at Fairbury, in your State,
wants to buy a bill of goods in Omaha ; he issues a check on his local
bank at Fairbury and sends it to the merchant in Omaha. The mer-
chant deposits it with you. How do you collect that ?

Mr. Btjcholz. Our practice is to collect direct.

Senator Nelson. Do you charge it to the bank in the first instance ?

Mr. Btjcholz. No, sir; we do not.

Senator Nelson. You collect it direct?

Mr. Btjcholz. Yes, sir.

Senator Nelson. In what way ?

Mr. Btjcholz. We have a transit account that runs from $800,000
to $1,200,000. We charge it to the transit account, and we send it
to the bank direct, and the banks remits in Omaha exchange, and we
credit it to the transit account, and thus the transaction is closed.

Senator Nelson. That is, less the exchange?

Mr. BucHOLz. Yes, sir; and we charge back the exchange to the
man who deposits the check. We do not absorb the exchange.


Senator Nelson. And the local banker at Fairbury gets that ex-
change fee?

Mr. BucHoi/Z. Yes, sir.

Senator Nelson. And it comes out of the merchant who has de-
posited it with you?

Mr. BucHOLz. Yes, sir.

Senator Beistow. You do not absorb that, charge?

Mr. BucHOLz. No.

Senator Beistow. Many banks do?

Mr. BucHOLz. Yes ; but we do not.

Senator Nelson. Do you charge even where your customer has a
good account with you?

Mr. BucHOLz. Absolutely.

Senator Nelson. You charge in every case?

Mr. Bucholz. Yes, sir.

Senator Beistow. In my little town in Kansas they never charge,
none of the banks.

Senator Nelson. What profits do you get out of that kind of busi-

Mr. Bucholz. It is a loss to us, as a reserve bank for other bankers.

Senator Nelson. In what way is it a loss, if you charge up the fee
to the merchant?

Mr. Bucholz. We are obliged — ^we give him credit for that, and he
has a balance to check against up to a certain day, and we are out the
use of the money.

Senator Nelson. Do you give that merchant the credit on the
check before you collect it?

Mr. Bucholz. Yes, sir.

Senator Nelson. Immediately?

Mr. Bucholz. Immediately, when he brings it in.

Senator Nelson. And you are out the use of it until you get the
money ?

Mr. Bucholz. Yes, sir; the postage and the work and labor in
sending it out.

Senator Nelson. The only man who makes a profit out of that is
the little banker on which the check is issued ?

Mr. Bucholz. He is the man who gets the profit.

Senator Nelson. He gets the profit?

Mr. Bucholz. Yes, sir.

Senator Hitchcock. If that is all, Mr. Bucholz, we will excuse
you, and we are obliged to you for appearing before us.

We will hear Senator Thomas now.


Senator Thomas. Gentlemen, I want to call the attention of the
committee as briefly as I can to a phase of the currency problem
that I do not believe has received much consideration so far, but
which seems to me to be one of sufficient importance to justify me
inflicting myself upon your consideration for a few minutes.

I have reference to the mattet of the United States bonds drawing
interest, not only those which form the basis of bank circulation, but


all interest-bearing bonds and the manner in which they should be
disposed of in connection with the general scheme of currency legis-

I think I may safely assume at the outset that the payment of the
interest-bearing national debt is very remote, and that is true not
only of our own but of all the nations of the world. We are not
making any provision for it to speak of, and we are living up to our
income. Aid the consequence, the bonded debt of the Government is,
for all purposes of currency legislation, at least a permanent condi-

Now, one of the most serious objections or criticisms that I have
heard relating to the Glass bill is based upon the effect of that bill
on the values of Government bonds held by the bankers and used by
them to secure circulation, and the loss which they must sustain in
the event that provision is destroyed and a different system of cur-
rency is adopted without reference to the bonds themselves.

It is true tha,t in 1900, by the act of March 14 of that year, the
Government paid the banks the difference between their face value
and their premiums, up to a certain amount — I forget just now
what — when that bill was amended, and certain changes made in the
national banking act. And it is equally true that now the Gov-
ernment does not want and will not inflict any loss upon the banking
fraternity. At the same time there is, in my judgment, a very
deep objection, a popular one, to the substitution of a 2 per cent
for a 3 per cent bond. Whatever may be said concerning it, the
fact remains that it does increase the rate of interest upon a majority
of the bonds of the country. And while there may be compensating
advantages, the average man knows that if he exchanges a 2 pei
cent note for a 3 per cent note he is paying more interest than he
was before. I confess that is an argument which appeals to me with
a great deal of force, and is aimed at a condition which, if it can be
avoided, ought to be avoided. A good deal of criticism against this
bill, too, has been aimed at the possible effect it will have, the
probable effect, as a great many believe, and the way of contracting
the currency, and necessitating the resort to a reduction of loans, of
discounts, for the purpose of securing sufficient money to meet the
requirements of this measure, and particularly with reference to the
matter of reserves. Now, if those objections can be met by intro-
ducing in this bill an amendment which will take care of the bonds,
which will not affect, principally at least, the reduction of the cur-
rency, and which at the same time will keep the bonds at par and
reduce the interest upon them, that is certainly something that ought
to adjust itself at least to the serious consideration of this committee.

Senator Nelson. You do not mean reduce the interest on the 2 per
cent bonds ?

Senator Thomas. Yes; I mean precisely that.

Senator Nelson. Eeduce the interest on the 2 per cent bonds ?

Senator Thomas. Yes; even to reduce the interest on 2 per cent

These preliminary remarks lead up to the proposition of providing
for an interconvertible bond, which in the hands of any one bank
or citizen or business corporation may be exchanged and reexchanged
at any time at the pleasure of the holder for bond certificates or


Treasury notes, and which at the same time would enable the bonds
themselves to be used for the reserves required to be kept by the

Now, I am not going to advocate

Senator Hitchcock (interposing). You mean the bonds to be
kept as reserves?

Senator Thomas. Giving the bonds the

Senator Hitchcock (interposing). The power of gold?

Senator Thomas. The power of gold, so far as the reserves of the
national banks are concerned. I think that irrespectivie of any par-
ticular opinion concerning the wisdom or unwisdom

Online LibraryUnited States. Congress. Senate. Committee on BankBanking and currency. Hearings before the Committee on banking and currency, United States Senate, Sixty-third Congress, first session, on H.R. 7837 (S. 2639) ... In three volumes → online text (page 64 of 171)