The national banks, organized by law of Congress and having relations with the Government in the issue of circulating notes, ought to be the most cautious and safe banking institutions of the country, and should be kept aloof from all hazardous business which it is not possible to prevent sanguine, venturesome, and speculative individuals from engaging in at the risk of their capital and their credit.

With a fixed amount of circulation of bank notes and of United States legal-tender notes not redeemable in coin and with gold above par in currency, there must be each year times of redundancy and times of scarcity of currency, depending wholly on the demand, no method existing for increasing the supply.

With a circulating medium redeemable in coin, a redundancy is corrected by the export, and a scarcity by the import of specie from other countries.

There is a prevailing sentiment that more elasticity should be given to the volume of the currency, so that the amount in circulation might increase and diminish according to the necessities of the business of the country. But the difference of opinion on this subject is so great and the real difficulties attending its solution are so numerous that, without discussing any of the multitude of plans which have been presented to the public through the press and otherwise, I earnestly commend to the wisdom of Congress a careful and thorough consideration of this important subject, rendered more obviously important by the present embarrassed condition of large business interests which have suffered by the recent

financial crisis; and that, in such inquiry, avoiding further inflation of the issue of irredeemable legal-tender notes, the most desirable of all financial results to be attained, namely, a permanent return to the sound basis of specie payments and a gold standard to which all our paper issues shall be made of equal value, shall be the aim.

To allow national banks to use part of their reserves at seasons of the greatest pressure, under proper restrictions and regulations, would afford some flexibility.

Rigid statute laws applied to all banks at all seasons and in all places alike often prove an embarrassment and injury when they conflict with economic principles and the laws of trade and business, which are stronger than legislative enactments and can not be overthrown thereby. Associated banks at the several redemption cities named in the banking law, which are the great controlling centers of business, might do much to give steadiness and safety if they were authorized, through properly constituted boards or committees of their own officers, to exercise a large discretion in the use of their reserves in the rate of interest to be charged at different seasons and under different circumstances and in other matters within limits prescribed by law.

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The crisis was caused in a great degree by the desire of the country banks to withdraw their balances from the city banks; first, because in the month of September the amount on deposit with the city banks was needed for the legitimate purposes of trade; and secondly, because the country banks, foreseeing and fearing the return of the experience of previous years, thought it safer to withdraw their balances at once. When the reserves of the New York City banks became alarmingly reduced by the drafts of their country correspondents, the only resource left to the city banks was to convert their call loans, amounting to some $60,000,000; but these, if paid at all, were paid in checks upon the associated banks, and the latter found, the next morning, at the clearing house, that, although a portion of their liabilities had been reduced by the payment of call loans, they were in the aggregate no richer in currency than on the previous day.

[The reserves of the 1,900 national banks located elsewhere than in the city of New York are held to a great extent in that city. For most of the time during the past year an amount equal to more than one-fifth of the capital of all these national banks has been held on deposit by the national banks of the city of New York to

a Finance Report, 1873, pp. 86-96.

b The three succeeding paragraghs which are enclosed in brackets are a part of an excerpt from the report of 1872.

the credit of their correspondents. In many cases these credits amount to twice the capital of the bank with which they are deposited; in other cases the amount of deposits is three, four, and even five times the capital, which amount has been attracted thither largely by the payment of interest on deposits. The failure of one of these New York City banks in a time of monetary stringency would embarrass, if not ruin, many banks in the redemption cities, and, in turn, the country correspondents of these banks would suffer from the imprudence of the New York bank, which would be responsible for wide-spread disaster. * * *

In times of excessive stringency loans are not made by such associations to business men upon commercial paper, but to dealers in speculative securities, upon short time, at high rates of interest; and an increase of call loans beyond the proper limit is more likely to afford facilities for unwarrantable stock speculations than relief to legitimate business transactions. * **

The variations in the liabilities requiring reserve in the banks of the city of New York are very great. The banks outside of New York during the dull season send their surplus means to that city for deposit upon interest, to await the revival of business. The banks in the city of New York at such periods of the year have no legitimate outlet for these funds, and are, therefore, threatened with loss. The stock board takes advantage of this condition of affairs, speculation is stimulated by the cheapness of money, and a market is found for the idle funds upon doubtful collaterals, and the result is seen in the increased

transactions at the clearing house, which during the past year exceeded $32,000,000,000, or an average of more than $100,000,000 daily-not one-half of which was the result of legitimate business; the total amount of transactions being greater than that of the bankers' clearing house of the city of London. The evil arises largely from the payment by the banks of interest on deposits, an old and established custom which can not easily be changed by direct legislation. A considerable portion of these deposits would remain at home if they could be used at a low rate of interest, and made available at any time upon the return of the season of active business. No sure investment of this kind is, however, open to the country banks, and the universal custom is to send forward the useless dollars from vaults comparatively insecure to their correspondents in the city, where they are supposed to be safer and at the same time earning dividends for shareholders.]

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The rule requiring a reserve was adopted by the voluntary action of the Clearing House Association of the city of New York previous to the passage of the national currency act. At a meeting of bank officers, representing 42 of the 46 banks of the city of New York, held at the rooms of the Clearing House Association in March, 1858, it was agreed "to keep on hand at all times an amount of coin equivalent to not less than 20 per cent of our net deposits of every kind, which shall be made to include certified checks and other liabilities, except circulating notes, deducting the daily exchanges received from the clearing house." This resolution was adopted five

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