Part 34

If there is one thing, more than any other, that should be kept out of this coöperative organization, it is politics. If the appointment should be the perquisite of the President of the United States it might be used as a bribe or a reward; such a thing should not be thought of. The policy of such an institution should be beyond the reach or influence of party politics.

SECTION 27. That the term of service of the president and vice-president of the American Reserve Bank shall be three years, and the salary of the president shall be twenty-five thousand dollars per annum, payable in monthly installments, and the salary of the vice-president shall be eighteen thousand dollars per annum, payable in monthly installments. The salaries of all the other officers or employees of said bank shall be fixed by the board of directors of said bank.

COMMENT:--The term of service should not be too long, for it would follow that a good officer would be retained, while a mistake could be corrected within a reasonable time. The salary should be sufficient to secure the ablest men that the country affords.

SECTION 28. That the Comptroller of the Currency shall ex officio be a member of the board of directors of the American Reserve Bank.

SECTION 29. That the Secretary of the Treasury of the United States shall ex officio be a member of the board of directors of the American Reserve Bank.

COMMENT:--Since the United States Government would carry its balances with the American Reserve Bank, the Government should be recognized by making the Secretary of the Treasury and the Comptroller of the Currency ex-officio members of the board.

SECTION 30. That the President of the United States, with the approval of the United States Senate, shall appoint three directors of the American Reserve Bank, who, for their first term, shall serve five, six, and seven years, respectively, and thereafter seven years, and each such director shall receive a salary of ten thousand dollars, payable in monthly installments.

COMMENT:--While it is true that the matter of management should be kept out of politics, it may be granted that it might be wise to have a small number of directors, appointed by the President of the United States, who would have only their respective votes in the deliberations of the board--but no official place. They might serve some good purpose at times; while they certainly could do no harm. The policy of the institution should not and would not be involved in these appointments.

SECTION 31. That vacancies in any one of the three boards as organized in this Act may occur by death, resignation, or expulsion, and shall occur whenever a member of any of the boards shall be a director or officer of a suspended, insolvent, or failed bank. All such vacancies shall be filled by the respective boards in which they occur until the first Monday in the month of May following, except those appointed by the President of the United States.

SECTION 32. That the term of office of each member of the three boards herein described shall begin at the time elected, but shall continue from the first Monday in the following May as if that day were the beginning of the time for which they were severally elected.

SECTION 33. That on the first Monday in May each year after one full year of service has expired the bankers of each commercial zone shall meet at the city in which the financial centre is located to fill any vacancies that may have occurred in any one of the boards described in this Act, and also to elect any members to said boards where terms of members have expired.

SECTION 34. That each commercial zone shall have all the attributes and powers of a body corporate and may sue and be sued in the United States courts having jurisdiction of the action brought; it may receive deposits from banks and act in every capacity of a bank for other banks, but shall not allow or pay any interest on such deposits; it shall have power to receive, collect, and forward bank notes; it shall have power to buy and sell commercial paper and bills of exchange from and to the banks which are members of such zone; it shall have power to act as the agent or attorney in fact of the banks which are members of any of the commercial zones, so far as it may be necessary to do so to carry into effect the purposes of this organization; it shall have the power to do and perform any and all acts that may be necessary for the proper performance of its duties in the supervision of all banks under it, and in the conduct and operation of the commercial zone.

SECTION 35. That each commercial zone shall maintain and keep in operation at its financial centre a clearing house where all the bank notes, checks, drafts, bills of exchange, and other instruments of credit, drawn upon any bank located in the zone, may be cleared, and for any other purpose that may come within the purview of this Act; and all such instruments of credit shall be accepted and settled for at par at such clearing house, under and in accordance with such rules and regulations as may be established from time to time by the board of directors of the American Reserve Bank.

COMMENT:--MR. MANUFACTURER: You have now completed the functions of the zone, it seems to me; and everything that you have proposed is based upon the approved practices of the American Clearing House.

The free check zone, provided for in this last section, is identical with that at Boston, where, ever since 1899, every New England bank check has been at par at the centre.

Atlanta, Nashville, Kansas City and several other cities are working out the same plan. This plan is also identical with the plan that New England worked out before the war, with respect to the redemption of bank notes, when bank notes were the chief form of bank credit then used.

From 1818 to 1865, you will remember, the Suffolk Bank acted as a clearing house for all New England bank notes which were par at Boston, precisely as checks are today.

Here we are getting back to the simple fundamental principle of current redemption of bank credit without charge to commerce in whatever form the people may choose to use it.

It is bank notes and checks in France, Scotland, Ireland and all over Canada. Why should it not be bank notes and checks all over the United States just as well, in order that the people may have bank credit in the most convenient and cheapest form possible?

Then, you have extended to every commercial zone the same organization for supervision and administration that the most advanced clearing houses have; the Board of Control to examine them and the Bankers' Council as a court of appeal to settle all difficulties that may arise.

MR. MERCHANT: Is it practical to have the zones conform to State lines?

MR. BANKER: Such a thing should not be thought of. Economic laws do not follow State lines. There is not a single State in the Union that is a natural economic zone. Some States should have several financial centres; some none. To attempt to make a commercial zone conform to State lines would be absurd. Bank credit flows to centres as water rushes to the ocean, and we should not violate a great economic law to the irreparable injury of commerce. Sense and not sentiment should control our action.

St. Louis and Kansas City are natural financial centres, but Jefferson City is not. St. Louis draws its bank credits from eastern Missouri, southeastern Iowa, northeastern Arkansas and southern Illinois.

Kansas City draws its bank credits from western Missouri, southwestern Iowa, southeastern Nebraska, all of Kansas and some of Oklahoma. These cities illustrate the principle that must not be violated or we may do more harm than good.

Vermont has no economic centre, and it would do violence to trade and commerce to make one arbitrarily.

Tennessee has three such centres. Indiana and several other States have but one.

SECTION 36. That the American Reserve Bank shall have all the attributes and powers of a body corporate and may sue and be sued in any United States court having jurisdiction of the action brought. It shall have power to buy and sell gold bullion and gold coin; to buy and sell United States Government securities; to loan money to the United States Government, and to act as banker, fiscal agent, representative and attorney in fact for the United States Government; to buy and sell bills of exchange, domestic and foreign; to act as fiscal agent, attorney in fact, for all members of the respective commercial zones, and shall have full power to carry into effect the object for which this organization is created; it may receive deposits from banks and act in every capacity of a bank for other banks, but shall not allow nor pay interest upon any deposits that may be made with it.

SECTION 37. That the board of directors of the American Reserve Bank shall define from time to time the nature and character of the promissory notes, checks, drafts, and bills of exchange that may be purchased by the respective zones and the length of time they may have to run: _Provided, however_, That every piece of paper purchased by any commercial zone shall bear the unqualified indorsement of some national bank in its zone.

COMMENT:--It would be unwise to fix now arbitrarily by statute just what kind of paper the banks of every zone should buy. This ought to be left to the board of the American Reserve Bank. They will meet it wisely as it arises.

SECTION 38. That the United States Government is hereby authorized and empowered to prepare, upon the passage of this Act, bank notes for the respective banks applying for them without the following superscription upon them: "This note is secured by bonds of the United States or other securities," but in all other respects like the bond-secured bank notes now in use: _Provided, however_, That the notes delivered to any bank for issue and circulation shall have in bold type, first, and to the left of the centre, the number of its zone, and, second, to the right of the centre, the number of the bank by which it is identified in its zone.

COMMENT:--This section provides a true bank note by erasing that barbaric superscription that makes our present bank notes a bond speculation; and by bold numbers identifies every bank note with a zone and with the bank issuing it, thereby greatly facilitating the quick redemption of the notes.

MR. MERCHANT: How much more economical would this currency be than a currency furnished by the Government or purchased from some central bank or other central institution?

MR. BANKER: It would cost just one-fifth as much, or the difference between _par_ that would have to be paid for the currency purchased and the average reserve carried; or about 20 per cent. The average per cent of gain to the banks would be about 5 per cent upon the amount of notes outstanding (approximately $1,250,000,000) or $60,000,000. Of course, this gain would come to the people, sooner or later; in the end, the expense of the bank is borne by commerce. The present enormous cost of shipping currency to and fro across the country would be saved also, and this amounts to several million dollars a year, to say nothing of the added trouble of shipping commercial paper with which to pay for it.

SECTION 39. That upon the completion of the organization of the several commercial zones as hereinbefore provided any national bank may retire all or any part of its present bond-secured note circulation by depositing with the United States Treasurer an amount of the present bond-secured notes or lawful money, or both, which shall be equal to the amount of its circulation so retired, and may thereupon, with the approval of the Comptroller of the Currency, take out for issue and circulation an amount of bank notes, which shall be known as "national bank notes," that does not exceed in amount its paid-up and unimpaired capital without depositing United States bonds or any other securities to secure the payment thereof as now provided by law: _Provided, however_, That before any national bank shall have the right to retire its present bond-secured circulation and take out national bank notes for circulation as in this section prescribed, it shall first, unless located in its financial centre, make arrangements with a national bank which is located in its financial centre for the redemption of its bank notes in gold coin or other lawful money: _And provided further_, That it shall first deposit in gold coin or gold coin certificates with the American Reserve Bank an amount of money equal to 7 per centum of its average deposits during the preceding calendar six months, and in addition thereto an amount equal to 7 per centum of the national bank notes it proposes to take out for issue and circulation.

COMMENT:--The amount of notes is limited to the amount of capital as a matter of convenience only. Some banks will not be able to keep out 25 per cent of their circulation, because their customers use checks; other banks will need at certain times of the year in some sections of the United States an amount of circulation largely in excess of the amount of their capital. The habits of the people will always determine what the amount of currency in use is, if permitted to choose between checks and notes; but crop-moving times will greatly increase the normal demand, as we have seen in the case of Canada.

SECTION 40. That thereafter every national bank shall have upon deposit upon the tenth days of January and July of each year with the American Reserve Bank an amount of gold coin equal to 7 per centum of its average deposits during the preceding calendar six months and 7 per centum of its national bank notes taken out for issue and circulation: _Provided, however_, That this reserve shall be increased at the rate of 1 per centum each year for a period of three years thereafter; and that thereupon and thereafter every national bank shall have upon deposit upon the tenth days of January and July of each year with the American Reserve Bank an amount of gold coin equal to 10 per centum of its average deposits during the preceding calendar six months and 10 per centum of its national bank notes taken out for issue and circulation.

SECTION 41. That every national bank shall carry a cash reserve of 6 per centum of all of its individual deposits subject to check up to six million dollars and one-half of 1 per centum additional for each five hundred thousand dollars up to ten million dollars, and upon this and all additional individual deposits a reserve of 10 per centum in cash.

SECTION 42. That every national bank shall carry a cash reserve of 20 per centum of its deposits from banks, or upon its bank balances.

COMMENT:--There is no doubt whatever that banks should carry larger cash reserves against bank balances than against those of individuals. The banks of Europe which carry such balances carry all the way from 33 per cent up to 50 per cent.

SECTION 43. That any national bank may at any time fall 75 per centum below its required cash reserve: _Provided, however_, That its average cash reserve from January 1st to December 31st shall be equal to its required cash reserve.

SECTION 44. That the amount that any national bank located outside of a financial centre shall be required to carry with a national bank located in a financial centre for the purpose of redeeming its notes may be counted as a part of its required cash reserve.

SECTION 45. That any national bank desiring to build up its reserve may rediscount or sell any of the commercial paper or bills of exchange owned by it by applying to the board of control of the commercial zone in which it is located.

SECTION 46. That if any national bank shall not maintain its required average cash reserve, as prescribed by this Act, it shall pay at the end of the year as a penalty therefor, 10 per centum upon all loans in excess of such required cash reserve; and such penalty so paid shall be paid without any reference to any rediscounts made with the board of control for gold: _Provided, however_, That the board of directors of the American Reserve Bank may at any time suspend the whole or any part of said 10 per centum penalty that may result from a demand for gold during a panic, crop-moving period, or any unusual or extraordinary condition.

SECTION 47. That any national bank desiring to take out for issue and circulation an amount of national bank notes in excess of its paid-up and unimpaired capital, without depositing United States bonds or any other securities to secure the payment thereof, may do so to an amount not to exceed 100 per centum of its paid-up and unimpaired capital stock, provided the board of control of the commercial zone to which such bank belongs first gives its approval thereto.

SECTION 48. That the United States Government shall print and place in the hands of the respective boards of control an amount of national bank notes for each national bank in its zone equal to the paid-up capital thereof in addition to the bank notes taken out in accordance with Section 30.

COMMENT:--You will observe, gentlemen, that by Section 43 a bank is allowed to fall 75 per cent below its average cash reserve; that by Section 45 it can buy gold from the Board of Control with its commercial paper and build up the reserve; also that by Section 47 it can take out an additional amount of currency to meet any emergency that may arise. Now, when you appreciate the fact that the Board of Control is going to make every bank qualify in the outset, as sound and then is virtually responsible for its condition, with the power to aid it in case of necessity, it is difficult to even imagine a case where a bank would fail.

MR. MERCHANT: That is so; every bank ought to be kept in liquid shape by the Board of Control; then its means of defense, as you have just pointed out, are unlimited. Of course it would then have all its present resources by way of rediscounting paper with its city correspondent; and on top of that the provisions of your bill. You could not possibly bust a bank.

SECTION 49. That national bank notes shall be a first lien upon all the assets of the bank issuing them, including the double liability of the stockholders, and any person or bank holding any of the national bank notes of a failed bank shall be entitled to recoup the amount thereof out of the first moneys received on account of the failed bank.

COMMENT:--These credit notes should be a first lien precisely as our present bank notes are; as the Scotch notes are and as the Canadian notes are. Bank notes should be made a first lien, because they are a public convenience and because the holder is morally and practically compelled to take them in the ordinary course of business.

MR. MANUFACTURER: He could refuse if he chose and demand legal tender, could he not?

MR. LAWYER: Certainly, but public policy should put the goodness of bank notes beyond question under all circumstances.

SECTION 50. That the expense of transmitting national bank notes by a bank to its financial centre, except its own bank notes, shall be paid by the board of control of the commercial zone in which such financial centre is located.

SECTION 51. That the expense of transmitting national bank notes from a financial centre outside of the zone to which they belong to the financial centre to which they belong shall be paid by the bank issuing the national bank notes so returned.

COMMENT:--It will not cost bankers anything to forward notes for redemption, as the expense of transportation will be paid by the commercial zones. This fact will insure the immediate return of all notes for redemption.

SECTION 52. That the national bank notes issued in accordance with the provisions of this Act shall be received at par in all parts of the United States in payment of taxes, excises, public lands, and all other dues to the United States, including duties on imports, and also for all salaries and other debts and demands owing by the United States to individuals, corporations, and associations within the United States, except interest on the public debt and in redemption of the national currency. Said notes shall be received upon deposit and for all purposes of debt and liability by every national banking association at par and without charge of whatsoever kind.

SECTION 53. That from and after the passage of this Act no bank shall receive or have on hand deposits exceeding in amount ten times the amount of its paid-up and unimpaired capital.

COMMENT:--Capital is a sort of insurance fund precisely as reserves are, and there should always be a reasonable relation sustained between capital and deposits.

SECTION 54. That any national bank may, with the approval of the board of control, establish a branch bank in any town, village, or locality within its own zone and within a radius of twenty miles, where there is no national bank; but such branch bank shall be discontinued as soon as an incorporated bank is established at that point with a capital of at least ten thousand dollars.

SECTION 55. That whenever any body of men desire to establish a national bank, or to nationalize a private bank, State bank, or trust company, they must first secure the approval of the board of control of the commercial zone in which the proposed bank is to be located; and if such application shall not be approved by the board of control for any reason, the applicant or applicants may then appeal to the board of the bankers' council for approval.

SECTION 56. That the decision of the board of the bankers' council upon all appeals by applicants for the privilege of starting a national bank shall be final, and their decision shall also be final in all other matters in which appeals may be made from the board of control.

SECTION 57. That all the rules and regulations under which branches are carried on shall be fixed and established by the board of directors of the American Reserve Bank.

SECTION 58. That any national bank which has taken out national bank notes for issue and circulation in accordance with this Act shall pay the American Reserve Bank on the tenth days of January and July of each year 1 per centum upon the average amount of notes in actual circulation during the preceding six months.

COMMENT:--The tax is placed at 2 per cent per annum because that is the usual rate of interest now allowed on good balances all over the United States, and the notes are only another form of deposits made by the public who carry or use the notes.

SECTION 59. That the tax so paid by the banks upon the national bank notes, as provided in Section 58 of this Act, shall be appropriated for the following uses and purposes:

_First_: To pay all the expenses of whatsoever kind growing out of the administration of the four organizations established by this Act.

_Second_: To pay 1 per centum per annum upon all the United States 2 per centum bonds or consuls until their maturity in nineteen hundred and thirty.

_Third_: To establish and maintain in the American Reserve Bank a bank note redemption fund equal to 5 per centum of the average amount of the notes outstanding each six months preceding the first days of January and July of each year for the purpose of redeeming the notes of failed banks.

_Fourth_: The balance remaining, if any, shall, on the tenth day of January in each year, be paid into the division of the reserve fund of the United States Treasury in gold coin for the purpose of converting the United States notes into gold certificates.

SECTION 60. That to any national bank which has complied with section thirty-nine of this Act the United States Government shall return the 5 per centum fund deposited with it for the purpose of redeeming its bond-secured bank notes.