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The Commoner
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32
VOL. 13, NO. 30
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fef-
banks. It is operated by a board of nine direc
tor, two-tbirds of whom are selected directly
by the member banks and one-third by tho
federal reserve board. Three of tho nine direc
tors must fairly represent tho commercial, in
dustrial, or agricultural interests of the com
munity. SMALL BANKS PROTECTED
In order to provide against control by the
larger banks of a given district, the member
banks of each region are divided into throo
groups equal, as nearly as may be, in number
and of similar capitalization. Each bank, re
gardless of its size, is given one vote in i.ho
selection of directors. Notwithstanding the care
which has been exercised to protect the rights
of the small banks in the selection of directors,
fears continue to be expressed that tho larger
banks of tho district may control the system.
By reference to the last annual report of the
comptroller of the currency anybody who enter
tains a doubt on this point may readily have his
apprehension quieted. I shall embody the table
taken from the comptroller's report in my re
marks. Number of national banks, classified by capi
tal (paid in), on Sept. 4, 1912.
Pr
Class No.
$25,000 2,004
Over $2f,000 nnd
Icbb than $GO,000 3S1
$50,000 and less
than $100.000 2,321
$100,000 and less
than $250,000 ....2.00C
$250,000 and lens
than $1,000,000 .. 498
$1,000,000 and lefls
than $5,000,000 .. 169
$5,000,000 and over 18
cent
27.09 $
5.15
31.38
27.12
6.73
Amount
50,069,730
Per
cent
4.79
1.23
12,849,335
124,452.200 11.90
254,053,385 24.29
195,282,230
234,305,700
175,000,000
18.67
22.40
16.72
Grand total 7,397 100.00 $1,04C.012,580 100.00
It will bo noted that of the 7,397 national
banks 2,004 have not more than $25,000 capi
tal; 2,321 have less than $100,000; 2,006 have
less than $250,000, while only G85 banks ex
ceed a capitalization of $250,000. Thus of the
7,397 national banks in the system 6,712 may
be classified as small banks, making it next to
impossible for the larger banks to control.
NUMBER AND RESOURCES
The question has repeatedly been asked as to
why the number of federal reserve banks is
fixed at 12, to which I reply that the number
adopted is a compromise between the extreme
suggestion of 50 on one band and 3 on tho '
other. The great central reserve city bankers
advocate but 3 regional reserve banks, to be
located, of course, in their central reserve cities,
while a distinguished member of the other
branch of congress advocates 1 for each of tho
48 states. The committee in fixing the number
at 12 gave consideration to the amount of avail
able capital of all the national banks, which
aggregates $1,046,012,580. Three competent
actuaries have made suggestive divisions of tho
country into 12 regions, and there can be no
possible doubt, if all the national banks go into
the system, that the minimum capital can bo
secured in the weakest of the 12 districts. The
Now York bank will have approximately $20,
000,000 capital; tho Boston bank more than
$10,000,000; the Chicago bank nearly $11,000,
000; the St. Louis bank $9,000,000; the Cin
cinnati bank $10,000,000; the Pennsylvania
bank $12,000,000; tho Washington bank $8,
000,000, and, as previously stated, the weakest
bank in the system, located experimentally at
New Orleans, $5,500,000. This, of course, is
merely a suggestive division of the country;
the actual division is to be made by the federal
reserve board after painstaking investigation.
The resources of tho federal reserve banks
can only bo approximated. Basing the calcu
lation on the aggregate capital of the national
banks, tho federal reserve banks will have a
capital of $104,000,000; about $400,000,000
in reserve funds and, perhaps, $200,000,000 of
government deposits, making a total of $704,
000,000, giving them an aggregate credit-extending
capacity of great proportions. That
such additional facilities are needed for the de
velopment of tho country can not seriously be
questioned. In this connection I shall ask leave
to insert In my remarks at this point an As
sociated Press dispatch from Sackett's Harbor,
N. Y., under date of September 5, 1913, con
taining the testimony of Prank A. Vanderlip,
president of the National City bank of New York
City, who asserts that $2,000,000,000 can be
profitably invested within tho next five years
in developing tho electrical industry of this
country alone:
COULD USB BILLIONS
Wl . . Sadcett Harbor, N. Y.. September 5.
JSiglit million dollars a week for flvo years
$2,000,000,000 In all can profitably bo Invested In
developing tho electrical Industry In thio country.
In the opFnlon of Frank A. Vanderlip, president of
tho National City bank, of New York. Mr. Vander
lip so declared tonight In addressing representa
tives of tho electrical industry in the United States,
meeting at Association island. He said in part:
"In making such an estimate one does not need
to draw on one's imagination. Little moro Is
needed than a grasp of present-day statistics, com
pared with those of 5 or 10 years ago, to give the
basis for such an estimate.
"When wo think what is certain to bo done in tho
way of electrillcatlon of steam railroad terminals
and heavy mountain grades; when wo reflect on
tho larger use of electrical energy for industrial
power, in agricultural uses, and in continued
growth of necessary interurban lines, wo do not
need to look further into the possible development
of the industry to see a requirement for $40,000,000
a year of new capital. . , ,
"That means an $8,000,000 new capital Issuo
every week for tho next live years. It is such a
capital requirement that you gentlemen aro fac
ing, and which must bo successfully met if your
energies aro to have an adequate field of display.
Can you get it?
"To get a full appreciation of the difficulties, you
may well glance outside of your own field, however,
and note that there will mature within that five
year period well over $1,000,000,000 of steam rail
road securities. The railroads in five years will
need, say, $4,000,000,000 for refunding and fresh
capital. States and municipalities will absorb in
the neighborhood of $1,500,000,000 more, so with
the $2,000,000,000 your industry will need there
should be provided between now and the end of
1918 between $7,000,000,000 and $8,000,000,000 for
these three purposes alone, to say nothing of
general industrial and other needs.
"These aro bewildering figures. They sound
moro liko astronomical mathematics than totals of
round, hard-earned dollars. The .raising of these
sums, however, is the practical problem that
financiers have directly in front of them."
FEDERAL RESERVE BOARD
I do not desire to weary the house, Mr. Chair
man, with too detailed a description of the pro
visions of this bill; therefore in the balance of
my time I shall deal only with its several vital
features. Overseeing the whole new system of
federal reserve banks, as a capstone of tho
scheme, is created a federal reserve board, con
sisting of seven members, three of them, the
secretary of the treasury, the secretary of
agriculture, and tho comptroller of the
currency, are members ex-ofllcio, and the
other four members are to be appointed
by the president of the United States for
a term of eight years each. As set out in
the report of the committee, the reasons for the
selection of the two treasury officials is self
evident. The treasury department not only is,
but will continue to be, a fundamentally im
portant factor in the financial organization of
the country, while the comptroller of the cur
rency, in charge of the national banking system,
will be a necessary adjunct in the management
of the reserve bank system proposed in this bill.
The secretary of agriculture has been added be
cause of the belief that conditions in the pro
ducing regions of the country would deserve
special consideration at the hands of the federal
reserve board, and that the secretary of agri
culture is the natural representative of these in
terests. It is further thought that the presence
of this official on the reserve board will give
its deliberations a broader character than if it
were composed altogether of members primarily
equipped for the technical details of banking.
The bill provides that not more than two of tho
presidential appointees shall belong to the same
political party, thus emphasizing the view of the
committee that the board should be a non
partisan .institution.
NO CENTRAL BANK
By not a few persons of intelligent observa
tion and long experience the confident belief is
entertained that no necessity exists for any
central body of control. They contend that wo
might Bafely limit the operations of the new
system to a given number of regional reserve
banks with the function of divisional clearing
house associations and distinctively independent
of one another. But the best expert and practi
cal banking opinion insists that the first essen
tial of banking and currency reform is a cor
relation of all the national banks at least, so as
to render possible a quick mobilization of re
serves at any threatened point in time of
emergency. On this latter theory was based in
large degree several currency plans considered
by the banking and currency committee of tho
house Prior to the adoption by congress of tho
Vreeland-Aldrich act; and altogether based on
this theory was the proposal of the monetary
commission to establish a single reserve associa
tion, which in reality would have provided a
central bank of banks. Indeed, in its final
analysis this scheme of the monetary commis
sion, moro familiarly known as the Aldrich bill
falls short of being a central bank in the broad
sense of the term only because it contains no
provision which would authorize the transac
tion of business with the public. There was
method in this omission, -it being part of tt,
general contrivance to avoid every sembhJn!!
of competition with the great banks 0ft
country. iao
I have observed, Mr. Chairman, that certain
eminent bankers, appearing recently before a
legislative committee of the other branch of
congress, have spoken consistently and vehe
mently in favor of a central bank; but If you
will carefully examine the hearings had by the
banking and. currency committee of this houBe
last winter you can not avoid the conclusion that
these gentlemen do not mean exactly what they
say. They do not want a real central bank
They simply want to establish a central banking
institution which they may control and use for
their own convenience, but to which tho Araeri
can people may not resort for any business pur
pose whatsoever. These gentlemen, when ap
pearing before the banking and currency com
mittee of the house, were distinctly asked if they
should be understood as advocating a national
central bank with branches throughout the
country, doing business with individuals, firms,
and corporations, as well as with individual
banks, whereupon they very promptly replied
that they were simply advocating a central bank
of banks. A central bank such as I havo
described, Mr. Chairman, or a central bank such
as Andrew Jackson destroyed, is the very last
thing that the great banks of this country would
desire to see, for the reason that such an in
stitution would necessarily import for them com
petition of the very sharpest description. Hence,
in the construction of the bill of the monetary
commission, great pains were observed and
much ingenuity exercised to avoid anything of
this kind.
VICES AND DANGERS AVOIDED
In the report of the banking and currency
committee of the house now before the members
we have in some detail set forth the objections
of tho committee to this Aldrich scheme, and In
the construction of the bill now under con
sideration the committee very anxiously and
carefully sought to avoid the vices and the
dangers which are now generally recognized In
the Aldrich plan. In that plan there was abso
lute lack of adequate governmental control; and
while there was great pretense of protecting the
interests of small banks, the very genius of the
scheme and the involved nature of its mechan
ism made it certain that the practical operation
of the system would inure to the advantage of
the large financial institutions, of the country.
Moreover, the possibilities of inflation under this
Aldrich scheme were so startling that the hank
ing community of the country itself became
alarmed; and the .distinguished publicist whoso
name and fame were chiefly associated with the
measure was practically driven from the public
platform by the terrific exposure of this defect
in the bill by a prominent banker of the west,
addressing a. society of political economists and
showing that it involved expansion to the
amount of six thousand millions beflore the
regulating tax applied, Even James B. Forgan,
of Chicago, and John Perrine, of California,
strong advocates of the scheme, admitted that
it provided "such vast credit-extending power
as to be almost beyond belief and certainly far
beyond requirements in any panic." Aside from
its clumsy mechanism, its dangers of inflation,
its peril to the independent banking system
which the spirit of this republic and the busi
ness habits of the American people have for Jv
years sustained, the whole thing was literany
saturated with monopolistic tendencies.
In the federal reserve board, which tho bi J
reported by your committee provides, there wiu
not be discovered any of the defects which were
essential features of the Aldrich bill. No capiuu
stock is provided; no semblance of acquisitive
ness prompts its operations; no banking incen
tive is behind, and no financial interest can per
vert or control. It is an altruistic Inst tution,
a part of the government itself, representing uw
American people, with powers such as no wa
would dare misuse. I do not ignore the "j"
that the batteries of the big bankers i have i oeeu
directed against this board or that the sharpy
criticisms of this bill relate to the powers wu
which this federal reserve board is vested,
yet, Mr. Chairman, there is scarcely aPJ
enumerated in section 12 of this bill whicn u
not been exercised by tho BovernmentJnflded
years or, indeed,- which has not been conuu
to one or two public functionaries.
NO EXTRAORDINARY POWERS
Nearly every power conferred by this m n
tho federal reservo board, composed oi
members, has been for half a century vesit
the national bank act in the secretarj