two and a half years. The value of these organizations, however, will pass out, as intended, as soon as an adequate reform of the banking and currency system is enacted by the Congress. Should the Congress not inaugurate a new banking and currency system by the date assigned for the expiration of the Aldrich-Vreeland Act, then it will be well to have that act extended; though, of course, it affords a very limited protection to the business interests of the country compared with what would be contemplated in new legislation.

Report of National Monetary Commission

[Sen. Doc. 243, Sixty-Second Congress, 2d Session, January 9, 1912]

To the Congress:

The National Monetary Commission, created by sections 17, 18, and 19 of "An act to amend the national banking laws," approved May 30, 1908, submits the following report:

Section 18 of the act gave authority and instructions to the commission as follows:

It shall be the duty of this commission to inquire into and report to Congress, at the earliest date practicable, what changes are necessary or desirable in the monetary system of the United States or in the laws relating to banking and currency and for this purpose they are authorized to sit during the sessions or recess of Congress, at such times and places as they may deem desirable, to send for persons and papers, to administer oaths, to summons and compel the attendance of witnesses. ***The commission shall have the power, through subcommittee or otherwise, to examine witnesses and to make such investigations and examinations, in this or other countries, of the subjects committed to their charge as they shall deem necessary.

In accordance with these instructions we have undertaken in as thorough and scientific a manner as possible to investigate banking and currency conditions in this and other countries. These investigations have been pursued through hearings and examinations in this country and abroad by members and representatives of the commission, and through the preparation of papers and monographs by expert authorities. The commission has through the Comptroller of the Currency collected statistical and other information from National and State banks and trust companies, national-bank examiners, and State bank supervisors.

In the summer of 1908 members of the commission visited England, France, and Germany, the three countries of Europe in which conditions most closely resemble our own, examining their banking arrangements, methods, and practices by personal interviews with the officers of the leading institutions. Representatives of the commission have also visited the banks of Canada, Scotland, Switzerland, Italy, and Sweden, conferring with their officers and examining at first hand their methods of organization and their arrangements for dealing with reserves, note issue, commercial paper, and other banking factors. The questions and answers of the European and Canadian interviews have been published in two volumes, which we believe contain more accurate and concrete information in regard to the actual practice of banking in these countries than has ever been published before. The commission has conducted hearings and

made inquiries in different parts of this country for the purpose of obtaining opinions of people, representing different localities and occupations, as to desirable changes in our banking laws. Public hearings, after ample notice thereof, have been held in New York, Chicago, St. Paul, Minneapolis, San Francisco, Seattle, Portland, Los Angeles, Salt Lake City, Denver, Kansas City, St. Louis, and Washington, while meetings such as that of the Western Economic Society at Chicago and of the American Bankers Association and its affiliated organizations at New Orleans, which have been devoted exclusively to the discussion of monetary legislation, have been utilized by the commission as a means for securing opinions of political economists and of bankers, respectively.

In examining the printed literature of banking at the beginning of our investigations we were struck by the paucity, both in Europe and in America, of material dealing with other phases of the subject than the history of the circulation privilege. It was practically impossible to find, at least in English, any satisfactory account of the operations of European banks other than note-issuing banks, any penetrating examination of the great credit institutions or of the organization of credit in other countries, while the literature of banking in the United States was confined for the most part to accounts of the obsolete State banking systems which existed before the Civil War and to the history of national banking legislation. Until our banking authorities had analyzed the processes and functions of modern banking institutions and cut loose from the traditional methods of banking of half a century or more ago, it was not to be expected that the discussion of banking reform would be in other terms than those current in the earlier period. It is a singular fact that most bankers, economists, and legislators who had written upon banking had discussed banking questions in much the same language and from much the same point of view as English authorities who debated banking reform in England during the decades before the act of 1844. The commission, therefore, at the inception of its labors enlisted the services of the world's best experts in a fresh examination of banking in the leading countries as it is conducted to-day. Leading financial editors, bankers, Government officials, and university professors in Europe and America and in the Orient, were employed to prepare papers upon the actual operations of banks and upon their separate functions and mutual relations.

The commission has thus collected and published monographs upon banking in England, France, Germany, Canada, Switzerland, Italy, Sweden, Belgium, Mexico, Russia, Austria-Hungary, Holland, and Japan as well as the United States, which because of their scope and authority, possess, we believe, enduring scientific value.

By means of special statistical inquiries framed upon a uniform plan and directed to the leading banks of Great Britain, France, and Germany, we have collected more complete statistical information with regard to the banks of these countries than has ever been collected before, while, by a series of special reports from all national and State banks and trust companies in the United States, the commission has been able for the first time to present reports from all of the banks in the country upon a uniform basis.

The commission recognizes the value of the assistance which it has received in the prosecution of its various inquiries and in compiling its data, as well as in the drafting of its proposals. It would be impossible to enumerate all of the bankers, economists, editors, Government officials, business men, and banking and commercial organizations that have generously and patiently cooperated in the work, and it would seem invidious to attempt any selection for special thanks. The list of contributors to the publications of the commission speaks for itself, but we are glad to express our obligations to many others who have rendered equal service in other ways.

The act of May 30, 1908, providing for the appointment of the National Monetary Commission was a direct consequence of the panic of 1907. We shall not attempt to recount the severe losses and misfortunes suffered by the American people of all classes as the result of this and similar crises. To seek for means to prevent the recurrence or to mitigate the severity of grave disasters of this character was, however, one of the primary purposes of its creation.

We have made a thorough study of the defects of our banking system, which were largely responsible for these disasters and have sought to provide effective remedies for these and other defects, in the legislation we propose.

The principal defects in our banking system we believe may be summarized as follows:

1. We have no provision for the concentration of the cash reserves of the banks and for their mobilization and use wherever needed in times of trouble. Experience has shown that the scattered cash reserves of our banks are inadequate for purposes of assistance or defense at such times.

2. Antiquated Federal and State laws restrict the use of bank reserves and prohibit the lending power of banks at times when, in the presence of unusual demands, reserves should be freely used and credit liberally extended to all deserving customers.

3. Our banks also lack adequate means available for use at any time to replenish their reserves or increase their loaning powers when necessary to meet normal or unusual demands.

4. Of our various forms of currency the bank-note issue is the only one which we might expect to respond to the changing needs of business by automatic expansion and contraction, but this issue is deprived of all such qualities by the fact that its volume is largely dependent upon the amount and price of United States bonds.

5. We lack means to issue such effective cooperation on the part of banks as is necessary to protect their own and the public interests in times of stress or crisis. There is no cooperation of any kind among banks outside the clearing-house cities. While clearing-house organizations of banks have been able to render valuable services within a limited sphere for local communities, the lack of means to secure their cooperation or affiliation in broader fields makes it impossible to use these or similar local agencies to prevent panics or avert calamitous disturbances affecting the country at large. These organizations have, in fact, never been able to prevent the suspension of cash payments by financial institutions in their own localities in cases of emergency.

6. We have no effective agency covering the entire country which affords necessary facilities for making domestic exchanges between

different localities and sections, or which can prevent disastrous disruption of all such exchanges in times of serious trouble.

7. We have no instrumentality that can deal effectively with the broad questions which, from an international standpoint, affect the credit and status of the United States as one of the great financial powers of the world. In times of threatened trouble or of actual panic these questions, which involve the course of foreign exchange and the international movements of gold, are even more important to us from a national than from an international standpoint.

8. The lack of commercial paper of an established standard, issued for agricultural, industrial, and commercial purposes, available for investments by banks, leads to an unhealthy congestion of loanable funds in great centers and hinders the development of the productive forces of the country.

9. The narrow character of our discount market, with its limited range of safe and profitable investments for banks, results in sending the surplus money of all sections, in excess of reserves and local demand, to New York, where it is usually loaned out on call on Stock Exchange securities, tending to promote dangerous speculation and inevitably leading to injurious disturbances in reserves. This con

centration of surplus money and available funds in New York imposes upon the managers of the banks of that city the vast responsibilities which are inherent in the control of a large proportion of the banking resources of the country.

10. The absence of a broad discount market in our system, taken together with the restrictive treatment of reserves, creates at times when serious financial disturbances are anticipated a condition of dependence on the part of individual banks throughout the country, and at the same time places the farmers and others engaged in productive industries at a great disadvantage in securing the credit they require for the growth, retention, and distribution of their products.

11. There is a marked lack of equality in credit facilities between different sections of the country, reflected in less favored communities, in retarded development, and great disparity in rates of discount. 12. Our system lacks an agency whose influence can be made effective in securing greater uniformity, steadiness, and reasonableness of rates of discount in all parts of the country.

13. We have no effective agency that can surely provide adequate banking facilities for different regions promptly and on reasonable terms to meet the ordinary or unusual demands for credit or currency necessary for moving crops or for other legitimate purposes.

14. We have no power to enforce the adoption of uniform standards with regard to capital, reserves, examinations, and the character and publicity of reports of all banks in the different sections of the country. 15. We have no American banking institutions in foreign countries. The organization of such banks is necessary for the development of our foreign trade.

16. The provision that national banks shall not make loans upon real estate restricts their power to serve farmers and other borrowers in rural communities.

17. The provision of law under which the Government acts as custodian of its own funds results in irregular withdrawals of money from circulation and bank reserves in periods of excessive Govern

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