family. From the very necessity of the case our Treasury Department must have vast transactions in the collection and disbursements of its revenues, which vitally affect the business of the country every day of the year. In its relations with the banks and financial institutions, not only through the funded debt and deposits made with them, but in the collection of revenues and disbursements, the operations of the Treasury are so vast and their ramifications so infinite that it is of vital importance that they be conducted by the most systematic and efficient means which can be devised.

For several years past the revenues of the Government have been largely in excess of expenditures, and there has been a constant problem presented to each successive Secretary of the Treasury as to the best means of replacing in circulation the money which the Government is forced to collect. The method of replacing it by deposit with the banks is probably the only one available and, although it has been handled with unusual skill and ability, is most unsatisfactory, unsystematic, and inefficient. It always is a matter which provokes criticism and complaint. It could be handled with far better results if the Government had under its control a central bank to which all revenues could be paid and through which all disbursements could be made. It would be better for the Government and would result in far better service to the people.

Many plans have been suggested for the organization and control of a central Government bank. An essential feature of it should be that it must be under Government control, so that it could be never be monopolized or used by any man or set of men. It should be kept out of politics. The men chosen for its managers and directors should be men of the highest character and ability, whose duties and interest would be for the undivided advantage and interest of the bank. It would not be difficult to accomplish this end by having the control divided between certain directors elected by the shareholders and a certain number chosen by the Government.

The bank should not be allowed to do a general or commercial business, but should be confined to the transactions of the Government business, the issue of credit notes, receiving reserve deposits from other banks, the discount of their paper on approved security, or rediscounting notes of their customers for other banks. It should also have the right to deal in United States Government bonds, and probably the bonds of States and municipalities, but not in stocks. It should have such authority for dealing in foreign exchange as will enable it to accumulate gold credits abroad and import gold and bullion when needed for its reserves. The main office of the central bank should be in the city of Washington, and such branches established in the reserve cities and sub-treasury cities as are found necessary. Its note issues should be credit notes, the same as in Germany and France, and they should have the same protection in the way of a very large gold reserve, the balance to be covered by bonds of the Government or other approved issues or by the notes discounted by it for other banks. The central bank, if given the exclusive right to issue credit bank notes, as it should have, could regulate the issue of notes in accordance with the demand, which could be determined automatically and with precision, through its relations with the other banks of the country. This should not make any change in the present bondsecured notes of the national banks, and would therefore not disturb the present volume of the currency or make any change in the demand

for United States Government bonds as a basis for circulation. Such a bank as is described, if established, would be a very great aid in the establishment of the postal savings bank system and make that a real practical question. One of the hardest problems in connection with the postal savings bank is to determine how the deposits should be handled and invested, or how deposited with the banks, in order to prevent the postal savings bank only adding to the amount of money the Government now takes out of circulation. The postal savings bank funds could be deposited with the central bank of issue and reserve, and thus be made available for the business of the banks, which would lead to their distribution wherever needed.

Undoubtedly the most practicable plan which has been suggested would be to have the stock of the central bank subscribed by the other banks in a fixed proportion to their capital. In addition to this, there might also be some shares sold by public subscription, with a limit as to the amount or number of shares which could be held by any individual. If it should be deemed advisable, there could be no objection to the Government owning a certain proportion of the shares, which might be paid in in cash or in Government bonds, but as there would be no trouble in getting all the capital needed this would seem to be unnecessary. The better plan would be to have the stock subscribed by the banks of the country in a fixed percentage of their capital; have the stock nontransferable, and require its surrender at its par value when any bank failed or went out of business. The national banks should be compelled to subscribe for this stock in proportion to their capital on entering the system. The capital would thus expand as the number of banks increased and there would be more business for it to do. The directors of the bank should be chosen, two-thirds by the shareholders and one-third by the United States Government. Some of the Government directors, if necessary, could be given the right to veto certain transactions, and the interests of the Government, and of the people generally, could be protected in this way. The profits of the bank should be limited, and the bank be conducted for the general welfare, not with a view of making profits. After providing for the accumulation of a moderate surplus there should be a return to the shareholders of, say, 3 or 4 per cent, and the remainder of the profits should be divided as in Germany-a small proportion to the shareholders and the balance to the United States Government.

A national central bank organized in this way, with its profits limited and its ownership widely distributed, mainly among the banks who were to be its customers, which would not be permitted to do a commercial business, but be limited to transaction of business with the Government and with other banks, would not be open to the objection urged against the former United States banks, that they were really private institutions engaged in a general banking business. Such a bank would be little more than a department of the Government. It would greatly improve the efficiency and value of the Treasury Department, and make it a means of assistance and benefit to business, instead of a menace and a danger, and would make our currency and banking system a source of impregnable strength in times of financial stress. By the wise use of its great powers and facilities it would be able to absolutely prevent the recurrence in the United States of a widespread bank panic. It would add to the stability of our business in every line and give us a banking and a financial system equal to any in the world.

The central bank of issue and reserve is urged mainly in the interest of people engaged in general business outside of the banks as a protection to them. The banks would have no interest in it except as it aided the general welfare. In fact it would rather tend to reduce the profits of the banks, and would interfere with the business of some banks holding large reserve deposits. The advantage to the banks would be in the protection afforded them in the reliability and mobility of their reserves and the steadiness and safety it would insure to business transactions of all kinds. If a satisfactory plan for the mutual guarantee of deposits by the banks can be worked out, it could be done through the means of the central bank better than through the Treasury Department. Some of the objections to the guarantee of deposits by the General Government would not hold in the case of its being done by a central bank which might be given power to do that in its charter.

If the experience of the country in the bank panics from 1857 to 1893 needed any further confirmation, the panic of 1907 has demonstrated beyond the possibility of denial that perfectly solvent banksif independent, isolated units with no power of cooperation except through such voluntary association as their clearing houses can not protect themselves in a panic and save themselves from failure without such a suspension of payments as to produce disorder and demoralization in all the business of their customers.

Well managed, sound, and solvent banks have been dishonored by having to refuse payment, and all our commercial, industrial, and financial affairs have been thrown into confusion because the Government fails to provide the necessary financial machinery to protect them in times of excitement and peril. No single bank or group of banks can do this for themselves. They must depend on the Government of the United States. For this reason this question is submitted for your consideration.

The solution of such a vast problem as this presents is not to be hoped for in any short time. Opinions are still too diverse to bring about quickly any such agreement as is necessary to accomplish a definite and final result.

In the meantime, we have a real emergency to face. Confidence is only in a measure restored and, while there is real progress being made, it is from necessity very slow. The banks are resuming as fast as they dare, and this is increasing daily, but it could be done more quickly and with much greater benefit to business if some aid could be given by legislation.

If a bill should be passed by Congress providing for some emergency issue of currency, through the clearing-house associations or other machinery now organized and existing, so that the action might promise to be very prompt and effective, it would doubtless be very helpful.

If the action taken should meet with such approval and indorsement as to convince bankers and business men that it would meet the emergency, it might operate as the suspension of the bank act has done in England on several occasions and give the relief needed before the provisions of the act ever were really in operation.

Any measure of this kind, however, to be of any assistance in this emergency must be adopted very promptly.

Annual Report, Secretary of Treasury (George B. Cortelyou)

[Sixtieth Congress, 1st Session, December 2, 1907, Pages 54-55]


The Secretary of the Treasury is given wide discretion in many matters wherein he is rarely called upon to exercise it, and little, if any, in others where it is needed, daily, particularly as to certain of those having to do with the vitally important subject of our currency. In times of emergency his hands are virtually tied. If in such periods of stress, in an effort to avert calamity and serve the interests of all the people, he is obliged to resort to unusual measures, criticism is unfortunately in many instances directed not to the inadequacy of the system, but solely to the effort to give relief, even though it be successful in accomplishing that purpose. It should not be forgotten that he has to deal with the practical rather than the theoretical side of the currency question. The failure of the adherents of the various suggested plans of currency reform to cooperate or to agree upon a practical measure would hardly appear to be a sufficient reason for holding him responsible for their indecision and inaction. The laws under which he administers his office should be made to meet the daily needs of the people, and his duties, sufficiently onerous as they are, should not be made more burdensome by restrictions which leave him with the responsibility, but with no adequate means at his disposal to meet it.

What has happened not only this year, but many times before, should serve as an admonition to enact wise laws for the prevention in the future of disasters due in part at least to the imperfect organization of our monetary system. Admittedly it has been of great service to our people, but with changing conditions there has become more apparent each year the need for improvement of a substantial and permanent character. If no action is thought advisable at this time fully to meet this need, I deem it important that something be done as speedily as may be consistent with thorough consideration to provide under Government guaranty a greater elasticity to the currency-something which shall be automatic in its operation and which shall tend to equalize rates of interest not only in different sections of the country, but at different periods of the year. Provision should be made either for such elasticity without the necessity of intervention on the part of the Secretary of the Treasury or he should be granted the authority to supply it by properly safeguarded measures. I believe that simplicity of plan and promptness of action are what the people need and will demand. What particular form this proposed legislation should take must be left to the action of the Congress. I have no pride of opinion as to the method, but I have the deepest concern that the result shall be adequately beneficial.

The only specific recommendation I would make at present is that it be given prompt attention, and that it be not laid aside until some definite means of relief shall have been enacted into law.

Act of May 30, 1908 (the Aldrich-Vreeland Act)

[35 Statutes at Large 546, Public Law 169, Sixtieth Congress, Chapter 229, 1st Session, Approved May 30, 1908, by Theodore Roosevelt]



National bank

currency asso-

Formation by

national banks.



Provisos. Members to be territory.

of contiguous

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That national banking associations, each having an unimpaired capital and a surplus of not less than twenty per centum, not less than ten in number, having an aggregate capital and surplus of at least five millions of dollars, may form voluntary associations to be designated as national currency associations. The banks uniting to Applications. form such association shall, by their presidents or vicepresidents, acting under authority from the board of directors, make and file with the Secretary of the Treasury a certificate setting forth the names of the banks composing the association, the principal place of business of the association, and the name of the association, which name shall be subject to the approval of the Secretary of the Treasury. Upon the filing of such certificate the asso- Corporate ciated banks therein named shall become a body corporate, and by the name so designated and approved may sue and be sued and exercise the powers of a body corporate for the purposes hereinafter mentioned: Provided, That not more than one such national currency association shall be formed in any city: Provided further, That the several members of such national currency association shall be taken, as nearly as conveniently may be, from a territory composed of a State or part of a State, or contiguous parts of one or more States: And provided further, That Subsequent any national bank in such city or territory, having the qualifications herein prescribed for membership in such national currency association, shall, upon its application to and upon the approval of the Secretary of the Treasury, be admitted to membership in a national currency association for that city or territory, and upon such admission shall be deemed and held a part of the body corporate, and as such entitled to all the rights and privileges and subject to all the liabilities of an original member: And provided further, That each national currency association shall be composed exclusively of banks not members of any other national currency association. The dissolution, voluntary or otherwise, of any bank in such association shall not affect the corporate existence of the association unless there shall then remain less than the minimum number of ten banks: Provided, however, That the reduction of the number of said banks below the minimum of ten shall not affect the existence of the corpo


Banks reassociation.

stricted to one

Existence not dissolution of

affected by

a member.


Reduction be

low minimum.

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