JUNE 14, 1912
The Commoner.
An Inside View of the M
oney
Trust
Following is an Associated- Press dispatch:
New York, June 6, The immense power
wielded by the New York clearing house asocia
tion over the banks or the country's financial
center and arbitrarily lodged in the hands of five
men should be placed under judicial regulation,
it was conceded by William Sherr, manager of
the association, on the witness stand today.
Mr. Sherr was the chief witness at the first
hearing held by the house committee on bank
ing and currency which is investigating the
so-called "money trust." The committee came
to New York today to take such testimony as
its powers will permit, pending the passage
of the amendment to the banking law now in the
senate under which the committee hopes to
be able to enforce from the banks its demands
for the information which it expects to make
the basis of remedial legislation.
While today's- inquiry was characterized by
Chairman Pujo as "collateral" to the main
scope of the inquiry, Samuel Untermeyer, special
counsel for the committee, developed through
Mr. Sherr's testimony to the effect that the
destiny of practically every financial institu
tion in New York was potentially at the mercy
of the "mere wbim determination or order" of
the five men who composed the "New York
clearing house committee.'"
Mr. Untermeyer referred to the regulations of
the association conferring IMs power as "mon
strous," also raised the question as (to whether
the association did not violate the Inter-state
commerce laws in the banking operations of its
members with out-of-town banks.
The clearing house conunntUtee Ihad tfiull power
over the admissions to membership,, aecondlmg
to the testimony of the witness, and ttihe power
of suspension.
"Then it rests with these five men as too
whether they can keep a competitor out of rtjbe
association?" inquired Mr. Untermeyer. ""JDon't
you think that is a monstrous regulation for
an institution doing an interstate business?"
"The average banker has a moral status to
maintain," replied Mr. - Sherr. "He realizes
that he can make more money by walking
straight than crooked. I have never known re
sponsible men who were able to fulfill the finan
cial requirements for admission to he refused.
If the committee took the narrow view of keep
ing out a competitor it would react against
them. Merchants and business men who are
the banks' largest customers would never stand
for unjust discrimination."
"I am not speaking of motives," pursued the
attorney, "but of the unbridled .and unlicensed
power of these men. .Don't you think this power
should be subject to judicial review and con
trol?" Mr. Sherr then explained that the clearing
house was a voluntary institution, similar-to a
private club, and that no court would hold that
a volutary institution could be compelled to
accept as a mombor anyone who could not com
ply with Its regulations.
'.'But you know that this great power exists;
Bhould it not bo judicially controlled?"
"I agroo with you," finally conceded Mr.
Sherr. "Whore there is a wrong it should bo
corroctod."
"And this mere whim, determination or order,
whatever you are to call it, to stop clearing for
non-member banks, don't you think that that
Is too great a power without judicial review?"
Tho 'witness again gave an affirmative answer,
but asserted that in the exercise of tho power,
"it is-not so bad as it looks," citing a recent in
stance where tho committee's powor was exer
cised to provent an Institution whoso officers
wero "not of good character" from obtaining
membership by buying out and merging with
b. clearing house bank.
"Good character, then, depends upon what
group of banks you belong to, doesn't it?"
queried Mr. Untermeyer.
"Oh, I don't admit that," Laid the witness.
Mr. Untermeyer raised tho question of the
violation of the interstate commerce laws when
he brought out of the witness that by taxing tho
collection of checks on out-of-town banks the
New York clearing house institutions "levied on
. the country a tribute" of over $48,000,000 an
nually. This tax, which was first imposed by
the clearing house in 1899, amounts to one
quarter of 1 per cent or one-tenth of 1 per cent,
according to the territory from which the check
originates. Mr. Sherr said, and any bank charg
ing a less amoiiat is subject, according I the
rules, to expttlsie-B after a second offense.
""Don't yon reaMae that tie -collection of t-of-town
checks ia this masaer 3s 3n restraint of
trade"?", asked Mr. r!erieyor, after pointing
out that n was impossible for the "clearing honsrc
banks to compete with -each other for a cus
tomer's accounts, for example to collect ttetlr
checks for nothing.
Mr. Sherr admitted that the clearing howso
was ' "an important factor 1n interstate com
merce," but again pointed oat that it wa a
pnrely voluntary organisation, and that a bank
not caring to pay the tax imposed, he said, to
cover the cost of collection, could withdraw.
After Mr, Untermeyer had read into the
record evidence that the cost of collecting
checks in Boston was only 7 cents on $3,000,
compared with the charge in New York of from
$1 to $2.50 per $1,000, he remarked:
"Banks have been obliged to close up because
their clearing houses have withdrawn, haven't
they?"
"Yes," said Mr. Sherr.
"Just a rumor that it is to be expelled will
cause a run on the bank, won't it?"
"That is probably true."
"Well, then, the idea of a bank allowing
itself to be expelled on account of the collec
tion rule is inconceivable," commented the at
torney. ""I think that if I were president of a bank
and felt that I was being unjustly used, I could
amwmn'ce the fact and withdraw without any
'damage too ray interests," said the witness.
He admritted the imposition of the collection
tax was mot properly a function of a clearing
arouse association.
Mr. Unteraneyer brought out by reading from
:a treatise by James G. Cannon, member of tho
'clearing house 'committee, that the banks of
Buffalo practically paid their dividends by tak
ing the collection of out-of-town -checks.
"'Don't you know that some of tho New York
banks are earning from 30 to 40 per cent on
their capital?"
The witness admitted that the National City
bank was earning 10 per cent on its capital of
$25,000,000.
Tho business done with the clearing house
banks by merchants and business men was in
the neighborhood of 72 per cent, he said, as
against 2S per cent for stock exchango trans
actions. The hearings will probably be continued into
next week. '
REAL HEARING PUT OFF
Because of its lack of power to obtain neces
sary data, the so-called money trust investiga
tion in its main scope will not bo taken up until
fall. This announcement was made by Chair
man Pujo, of tho investigating committee, at
the opening of the hearing in New York today.
"In view of the insistence by some of tho
financial institutions that the committee is with
out authority to enforce Its demands for recog
nition, the committee concluded It inadvisablo to
take up the main inquiry until all doubt as to
power had been removed by the passage of tho
bill to amend tho banking law," said Mr. Pujo.
"The bill has passed tho house and is now bo
tore tho finance committee of tho senate.
"It will require months of painstaking investi
gation and preparation after tho proposed legis
lation has been enacted to secure tho data that
is essential to tho inquiry. Tho required data
must bo gathered primarily from the books of
tho corporations concerned and must bo segre
gated before witnesses can be advantageously
examined..
"The committee Is anxious to avoid exposing
legitimate transactions and this can be accom
plished only after tho plan has been arranged.
" "Tho commltteo considers it inadvisablo in
every event to conduct this far-reaching econo
mic inquiry during tho excitement of a political
campaign and has not from tho outset con
templated any such course Tho intervening
timo will bo devoted to taking testimony on
certain collateral subjects.
"Tho relations of tho clearing house associa
tion and the stock oxchango to the financial
system, and to tho increasing concentration of
money will bo investigated in tho few sessions
that are to be held before the summer vacation."
From the first witness, Prof. J. Laurence
Laughlln, head of tho national citizens leaguo
ftpr tho prowotkm of sonwd afcklwR, Samirel
llnftormaywr, apedta) ccuraol for tiWo committee,
hstrtegkt owt tifco fatmfit thtat wo cmAtUwi
ilms had ben matta to the league's fund by
J. P. Ifo-rgan & Oo. or by Rnhn,, Toeb A Co.
Mr. Untermeyer wanted to kwow why an-d Pro
fessor Lanphltn said merely thai they had not
been soUcttod.
Now York, Jo 7. Testimony tat ended to
skew how the power of tho New York c flaring
hwa committee was w&ed to force a solvent,
bank to the wall dewing the aftermath of tho
nanJc of 337, with like result "'tlml the fatr
ra$HitatJofi" of it president wa "Masted," was
dramatically presented today before the Pujo
committee of tho ho so of rofireaftntaUves,
which U inventlsntSng the so-called mony
tnrau The testimony was elicited by Snmnel
Untermeyer, special connaol of the committee,
ia his effort to demonstrate that ihe fnnettons
of tha clearing bonne enables it to control the
deatiny of New York's financial institutions and
should be snbjcci to regulation by law. Tho
bank arownd which this testimony centered was
the Oriental, orffnnlfd in 1SR3 and of the
charter member of the clearing hot ajwocla
tion, bt it was testified that three other banks,
the Bank of North America and the New
Amsterdam National bank, in both of which
Charles Morse was interested and the Mer
chants" and Traders" wejt similarly compelled
through the action of the clearing house to close,
although all proved to have been aoT nt.
Their financial distress was the rosSflt, II was
testified, of a demand made by ? clearing
house committee three months after tho panie
began, that they redeem their clearing house
loan certificates, and in the case of the Oriental,
followed a promise that the association would
stand by it "to tho last ditch."
Mr. Untermeyer had on the stand William
Sheer, manager of tho clearing house associa
tion; Barnes G. Cannon, president of the Fourth
National bank, who recently became a member
of the clearing house committee; 11, V, Jones,
president of the Oriental at the time of the
panic, and Ersktno Hewitt and Charles A. Bock
man, directors of the bank.
During the first rumblings of the panic In
October, 1907, Mr, Jones was summoned beforo
the clearing house committee, according to the
testimony and told that the Oriental must stop
clearing for throe non-member banks, including
two Brooklyn institutions which were under
legal Investigation. Mr. Jones said the with
drawal of tho balances of these banks under the
prevailing strained financial conditions would
cause "serious trouble" to his Institution, but
tho clearing house committee was obdurate. At
his request the clearing house agreed to lido
him over with a loan, after a clearing houso
committee examined tho bank's condition and
had found It "entirely satisfactory."
Tho Oriental then discontinued clearing for
the Brooklyn banks, as tho result ofd ch both
soon closed, It was testified. President os wns
then taken 111 with pneumonia, an" report
became current that he was to be it . cd In
connection with tho investigation of tho "ook
lyn banks and was shamming Illness, the day's
testimony ran. It turned out that he was only
wanted as a wltnoss.
Meanwhile tho rumors afloat had caused a
run on tho bank and tho clearing house com
mittee called before It Mr. Howltt and Mr.
Beckman nnd demanded, according to Mr.
Jones, that ho resign and tho late Hugh Kelly
also a director of tho Oriental, be elected to suc
ceed him.
Thi3 was consented to after a promiso had
been given to Kolly by A. Barton Hepburn,
chairman of tho clearing houso commltteo, ac
cording to Howltt's testimony, "that tho associa
tion would stand behind tho Oriental till tho
last ditch."
Kolly obtained a Bpoctflo guarnntep, Howltt
said, that tho entlro resources of tho clearing
houso would bo placed bohlnd th. Oriental.
As doscribed in a lottor, Mr. Jones testified
Mr. Kelly prepared a statoment but never uont
it to tho Btockholdors of tho Oriental, which wa
put in evidence A number of gentlemen of
high place in financial affairs Bat in Judgment
on him (Mr. Jones), their follow-membor, and
concludod thoir deliberations with tho follow
ing sentence: "That tho board of directors of
tho Oriental bank must moot at onco, accopt Mr.
Jones resignation of tho proBidoncy aud oloct
another pcosldont In his place."
"Thus, In a moment' tho lottor conttnuod,
"without oxcuso othor than tho Btatomont with
out foundation in fact that Mr. Jonou was al
ready indicted or would ho Indicted that day,
was a fair reputation blasted and tho work ojt
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