Wednesday, July 23, 2014

Senator Crawford. I confess I do not understand it. You subscribe only 20 per cent of your capital stock. How much money will that be?
Mr. Bassett. Twenty per cent of the capital stock would be $20,000.
Senator Crawford. Yes; but for all the banks in the State. Mr. Bassett. It would be 20 per cent of $27,000,000. Senator Crawford. Just to get it in the record, what does that amount to? Mr. Bassett. $5,400,000.
Senator Crawford. So that one-half of that paid in cash for the stock would be
Mr. Bassett (interposing). $2,700,000.
Senator Crawford. That would be no longer available as loans to your customers in South Dakota? Mr. Bassett. That is correct.
Senator Crawford. They would be deprived of the use of that amount in the State? Mr. Bassett. Yes, sir.
Senator Crawford. Now, what would the reserve tied up in the regional reserve bank without interest amount to in the aggregate?
Mr. Bassett. The law contemplates 5 per cent of $32,000,000.
Senator Nelson. No; it is 5 per cent of your deposits.
Mr. Bassett. The deposits are $32,000,000. It would be 5 per cent of that; it would be $1,600,000.
Senator Nelson. Added to them, that would make it over $2,000,000, would it not?
Mr. Bassett. Added to the $2,700,000, it would make it $4,300,000.
Senator Crawford. That is what I wanted to get at. The effect of this law as it is presented here would be to take out of the loanable assets of thenational banks of South Dakota this sum of
Mr. Bassett (interposing). $4,300,000.
Senator Crawford. And it would be located in the regional reserve bank, unless the South Dakota banks which paid it in could get it back again by reason of discounting their paper in the regional reserve bank, would it not?
Mr. Bassett. They have the opportunity; but what I maintain is that that class of paper as a whole is only a comparatively small amount of what they would be able to get back of what they put out. You have only figured the 10 per cent. Any reliable and responsible banker if he has an obligation out for 10 per cent—we have got a 20 per cent obligation—or $2,700,000 more.

Senator Crawford. Now, your town is the second largest town in the State, it is not? Mr. Bassett. Yes.
Senator Crawford. Well, most of these 104 national banks that you speak of are located in country towns much smaller than the one you live in?
Mr. Bassett. Towns varying from 2,000 to 500 people, most of them. I think I have already said that conditions would be even stronger in favor of having a less amount of that class of paper in the smaller country banks than in ours.
Senator Crawford. There would be less commercial paper in the smaller banks proportionately than in a bank like that in Aberdeen, or a banksituated in Sioux Falls, would there not?
Mr. Bassett. Aberdeen and Sioux Falls would correspond quite closely.
Senator Crawford. Take a small town of from 600 to 1,500 people. Would they have much paper maturing in K0 or 90 days that they could rediscount under this law at the regional reserve bank?
Mr. Bassett. Very little—only possibly during the month of September—the latter part of August, and September and October; say three months out of the year. A great many of them even run a year.
Senator Crawford. I did not want to interrupt the thread of your remarks, but I wanted to get those facts in the record.
Senator Pomerene. Just along the line of what you have been asking, may I ask a question? What reserves do you require under vour State law?
Mr. Bassett. Under the State law a trifle higher than under the national—20 per cent.
Senator Pomerene. Now, of course, under the national-bank law your reserves are 15 per cent now, and under this bill they would be reduced to 12 per cent. Where do you carry your reserves, generally speaking?
Mr. Bassett. In reserve centers like Minneapolis, Chicago, St. Paul, and New York.
Senator Pomerene. And what, in fact, are your reserves on the average—what per cent of your deposits?
Mr. Bassett. From our own bank, our reserves will average from 30 to 35 per cent, including cash on hand and actual reserve.
Senator Pomerene. And you carry that largely for convenience, I take it?
Mr. Bassett. For convenience and safety and facility of doing business. We could not run on a 15 per cent basis, although the law permits it.
Senator Pomerene. Then, how would you be prejudiced by the fact that the law now would require 12 per cent of reserves?
Mr. Bassett. Because I think there is not any benefit from it. from the fact that 12 per cent or even 15 per cent is too low to do business carefully and conservatively and with reasonable speed.
Senator Pomerene. Would it not be a good thing for you to have some place to go where you could rediscount your paper, assuming that was the custom throughout the country generally?
Mr. Bassett. I consider that I have that now.

Senator Pomerene. Yes: but in your section of the country is it not regarded as rather bad banking to do it? Mr. Bassett. It is not regarded with favor.
Senator Pomerene. I think that is true generally throughout the country.
Mr. Bassett. Yes, sir; a bank that borrows extensively and shows it in their statements is not considered in good shape.
Senator Pomerene. But if it were adopted as a national policy, don't you think it would be regarded rather as good banking instead of bad banking to rediscount—when necessary, of course?
Mr. Bassett. There may be in the course of a series of years a complete change of sentiment, but from my own standpoint I do not regard it as particularly good banking to borrow money for any length of time to reloan—from a banker's point of view. But in a series of years a change of sentiment might come about.
Senator Pomerene. That seems to be the condition generally in the European countries.
Senator Nelson. What it amounts to, Senator Pomerene, is borrowing money to loan out.
Senator Pomerene. I take it that would only be done in cases of necessity. Every locality gets into the condition where they need additional currency for some reason or other.
Senator Crawford. Mr. Bassett, right there, it seems to me that this system—if the small country national banks of South Dakota are compelled to go into it—will take out of their loanable asssets over $4,000,000 for paid subscriptions to stock of the regional bank, and that it will also take out a largeadditional sum that is required to be kept in the regional reserve bank as a reserve. For that reserve the bank is to receive no interest, as I understand it.
Mr. Bassett. Yes, sir.
Senator Crawford. Upon the stock so subscribed, amounting to over $4,000,000, the dividends are limited to 5 per cent—or they were originally in the bill. Now, on the other side, what will be the benefit to the communities from which this money is taken in South Dakota, to the banks themselves, and to the people out there who are now borrowing this money from the banks? What will be the benefit which they will receive from this system that will compensate the community and the banks for the loss of the use of this money as it is being used now?
Mr. Bassett. I fail to see any particular benefit that might arise from it, except in time of extreme panic. I do not see personally, or as a banker in that locality, any particular reason why they should discount, which they would have to do to overcome this loss of $4,000,000, except in time of stress. It might be a safety valve at that time.
Senator Bristow. Do you not think a safety valve could be created without having to pay so much for it?
Mr. Bassett. I certainly do. I am not prepared to draft a bill to that effect, but, from a practical standpoint, I believe it could be done.
Senator Crawford. That is the chief thing in this bill to which you object and the banks of your State object?
Mr. Bassett. That is one of the chief items, and then the question of exchange charges in another section of the bill.

Senator Bristow. Before you go to that, if it will suit you just as well, let me ask you another question. It has been intimated that a six months' n«te if it matured in three months could be used for rediscounting. Now, how would your customers feel if you sold their notes and when they came to pay them they would have to pay them to some bank in Minneapolis or Chicago?
Mr. Bassett. Of course, that question would arise with them immediately, particularly if it became a custom to rediscount. They would say: " Why, we dare not risk that; you may not have that note at all when the time comes. It may be in the Government bank in Chicago, and you would not have anything to say about it."
The Chairman. Do you mean to say that notes would be paid in that event in the Government bank at Chicago?
Mr. Bassett. If it was rediscounted—for instance, if Chicago were the regional point.
The Chairman. Yes; but it is made payable in your bank.
Mr. Bassett. Surely.
The Chairman. And would be payable in your bank and nowhere else.
Mr. Bassett. Yes; but we would obey the instructions of the regional bank that was returning it to us.
The Chairman. Of course, but if you wanted to extend that paper you would give them a rediscount again.
Mr. Bassett. We would have to assume that responsibility ourselves.
The Chairman. You would do that in any event? Mr. Bassett. If I were going to extend it I would extend it; yes, sir.
The Chairman. In either case, whether you had sold it or not? Mr. Bassett. I would feel that I had to obey the regional bank in any case.
The Chairman. Of course, and it would simply be a transfer of credits.
Senator Bristow. Under the provisions of the bill such paper as that, however, would not be available as a basis for currency, for the alleged merit of this 90-day system is that the money is to be picked out of the pockets of the people in order to relieve the stringency by the payment of these notes. That is one argument that has been made for 90-day paper. And if it has to be renewed at the end of 90 days it is not taken out of the pockets of the people, but it is extended just as it is now.
The Chairman. Is the Senator asking the witness a question?
Senator Bristow. I am simply thinking aloud in regard to some of the remarks I have heard the chairman make in the past. [Laughter.]
Mr. Bassett. There is the question of exchange, which, of course, naturally meets with a very serious objection from practically all the country banks. I believe that the business men as a whole over the country believe, and the bankers certainly believe, in a legitimate charge for exchange. If these checks and drafts, that might be drawn on the various banks in the country were received by the regional bank at par, as indicated in the bill, and charged to your account in that regional bank, it would be very questionable at any time whether a bank would be able to keep up its reserves. It is an ordinary thing for our reserve bank in Minneapolis to charge us from $40,000 to $60,000 a day in checks they gather, and a regional bank would certainly gather a larger amount than that even. We would not know whether we had $10,000 in the regional bank or $30,000.
The Chairman. You would not know that as to the reserve bank, either, until you were notified? Mr. Bassett. No, sir.
The Chairman. And one case is the same as the other, is it not?
Mr. Bassett. No; only to this extent: That in one case we are obliged to keep it there and in the other case we can tell them not to charge it off to our account, but that they can send it to us for collection.
The Chairman. Do you not constantly remit to your present reserve agent in order to offset these checks that are charged against you?
Mr. Bassett. In the daily transaction of business
The Chairman (interposing). Would you not do the same thing with the reserve bank?
Mr. Bassett. To a certain extent.
The Chairman. What would be the difference?
Mr. Bassett. Because the reserve bank would charge it to our account
The Chairman (interposing). Your present reserve bank does that?
Mr. Bassett. No, sir; we do not allow them. We are in a position to say so.
The Chairman. You do not allow them to charge checks against you?
Mr. Bassett. No, sir; we are in a position to say to them that they shall not .
The Chairman. What happens is that they send those checks back to you and you remit for those checks? Is that the idea? Mr. Bassett. Yes, sir.
The Chairman. In other words, you are able to keep that outstanding money moving as a volume of checks a little longer? Mr. Bassett. Yes. sir.
The Chairman. And in that way you get the volume of interest for a few days?
Mr. Bassett. One of the nice little details
The Chairman (interposing). One of the nice little details at the expense of the country?
Mr. Bassett. I do not think it costs anybody anything.
The Chairman. If it does not cost anybody anything, you do not gain anything.
Mr. Bassett. It may cost the reserve bank a little
The Chairman (interposing). You get the use of it and a positive benefit, and it does not cost anybody anything?
Mr. Bassett. It does not cost the customer or us anything.
Senator Bristow. The reserve agent does that in order to get your account?
Mr. Bassett. He wants the account that much, at least.
Senator Bristow. You could not go to him when you are compelled by law to keep your reserve in a Federal bank? Your hands would be tied so far as utilizing that which you now have is concerned? 9328°—S. Doc. 232, 63-1—vol 2 45

Mr. Bassett. I do not think the Government bank would submit to dictation.
Senator Pomerene. Did you have any difficulty in getting money in 1907 from the reserve agents? Mr. Bassett. A little; it was not even serious.
Senator Pomerene. You would have felt a good deal of relief if you had not been hampered in that way. would you not?
Mr. Bassett. We would have felt relieved if we had not been hampered by a panic at all. I could not say that the situation was with us particularly strenuous.
Senator Pomerene. It was pretty general all over the United States, and you felt it to a certain degree in your own State?
Mr. Bassett. Oh, yes; we did not sleep quite as long as usual.
Senator Pomerene. And if you had had some place at that time where you could have taken your short-time paper »nd had it rediscounted and got currency for it, it would have relieved you quite a good deal, would it not?
Mr. Bassett. I did do that and got relief.
Senator Pomerene. What per cent did you pay at that time when you were rediscounting your paper?
Mr. Bassett. Six per cent. There was another point I wished to touch upon, and that was relative to farm loans, in secfion 26.
Senator Pomerene. In that connection, what was the controlling rate of interest up there? When you were getting it at 6 per cent, what did you charge your customers for it?
Mr. Bassett. From 8 to 10. The majority—our average rate is about 7 to 8 at the last statement. There is a difference between a business rate and a cattle rate.
Senator Nelson. What are your lowest rates?
Mr. Bassett. Merchants' paper at 6 per cent. Of course, we do not see any money in borrowing money at 6 per cent and loaning it to the merchant at 6 per cent.
Senator Crawford. Mr. Bassett, before you take up this other point I should like to get a statement from you—that is, if you are able to give it—with reference to the proportion of paper held by all the national banks in South Dakota that would be rediscounted at a regional reserve bank under this proposed law. What proportion of the paper held by national banks in South Dakota, as they run—little banks of $25,000 and larger banks like yours—would be within that class that would be rediscounted?
Mr. Bassett. I would only be able to estimate that from my relation with the bankers of my State, and from my connection with State bankers in country towns, which would issue that class of paper. I would say 15 to 20 per cent only.
Senator Crawford. Not more than that?
Mr. Bassett. No; because the smaller the town, the more sparsely settled the community, the more apt that paper is to be a long-time paper.
Senator Crawford. Is it not also a custom to renew and extend from one crop period to another crop period, accepting the interest and a small payment and extending the balance, so that the average loan will extend over a considerable period of time?

Mr. Bassett. That does happen. I would not say that that is the custom. A certain percentage of that paper will figure out that way; but I would not say that was the custom, for a man's paper to go on from year to year.
Senator Nelson. What proportion of your national banks are those small $25,000 capital banks? It must be a majority of them.
Mr. Bassett. I should say 60 per cent of them.
Senator Nelson. Which come under that category?
Mr. Bassett. Under that $25,000 capitalization. When the law allowing banks to organize with a capitalization of $25,000 went into effect manynational banks were organized on the strength of it. I would say in this connection you remind me of the fact I had in mind to organize two othernational banks soon, but it has entirely departed from my mind since this bill has been pending. I do not think I want any more national banks.
Senator Crawford. The customers of those little $25,000 banks, as a rule, are farmers and stockmen and retail merchants, little country storekeepers?
Mr. Bassett. Yes, sir; in the small towns.
Senator Crawford. Almost exclusively the borrowers are of that class in the small towns where you have banks of $25,000 capital. Is not that true?
Mr. Bassett. Practically all of them. If there is nothing further relative to these short-time loans, I would like just for a moment to speak relative to section 26, "Loans on farm lands." I have not seen that there is being very much said about that—about the 12month period originally amended from 9, I think. It does not cover the contingencies of the case that arise in our country. If a farmer makes a loan on his real estate—our land is of good value—he makes it for further improvements on the land, so it is usually made for three to five years. I would be inclined to think that that would be rather a long-time loan for a national bank to make, but, to my idea, if it was made for two or three years—not less than two years—it would be practicable for the national banks in our country to take considerable of that paper, to the extent it is limited in the proposed bill. It is limited as to what they can take. As I understand it. in the South the cotton grower is accustomed from the training of his banker to give a mortgage for a short time. But that can not be done in our country, because the money the farmer borrows is not to raise his crop. He is usually good enough to get that on his note, or a note with a signer, or on chattel security. The question has always been raised that the real estate mortgage was not liquid. I found during the panic of 1907 if there was anything in our bank that we could raise money on it was a real estate mortgage.
The Chairman. Where did you raise it principally?
Mr. Bassett. From the farmer himself. If a farmer came in the bank—I do not know of any case of this kind, but I know with some it did happen—and he was scared he was not going to get his money and was given a real estate mortgage of some neighbor he knew, he was perfectly satisfied.
The Chairman. That occurred in quite a few places in the country?
Mr. Bassett. Yes. And really during the panic of 1907 that was the most mobile asset we had; but I believe in this case there is no question that it should run for two or three years, to be made by national banks.

Senator Nelson. I know of two instances in the southern part of my State in the panic of 1893 and 1894 where a run was checked by the giving of mortgages.
The Chairman. Yes; Festus J. Wade went about through the country doing that very thing, and he made over a million.
Mr. Bassett. The bank said:
Why, when you let us have the money you did not expect for a moment we were going to let it He idle? We loaned it out on your neighbor's mortgage, and here it is.
The Chairman. That was done in quite a few instances, and Festus J. Wade, on his own activities, went through the country and sold mortgages in $500 amounts. The mortgages were issued in the first place for $500 amounts, so as to make them a marketable security.
Senator Nelson. I would a great deal rather take a good farm mortgage than any railroad stock or bond you could give me.
Senator Bristow. If farm-mortgage security was given the same advantages that it is proposed to give this commercial paper, would it not add to the desirability of farm mortgages as security? That is, if the Government would take a farm mortgage as a basis for currency, would it not make a farm mortgage a more desirable loan than it is now without such a privilege?
Mr. Bassett. It would not, on account of the lack of elasticity or ability to raise money quickly.
Senator Bristow. You can raise it more quickly upon the other security?
Mr. Bassett. Yes. May I ask what the suggestions to the committee have been on this point as to the length of time of real-estate mortgages?
The Chairman. The suggestions made by the witnesses have been to extend it from nine months to five years.
Mr. Bassett. That is, the mortgages to run for five years? I am inclined to think that would be a Tittle long as this is too short.
There was one other point, relative to the savings department. I know a great many banks throughout our country are carrying a savings department purely, I think, at the pleasure of the department. I do not know that it is authorized in any way, but there are no savings banks, practically, in our country. There are only two in the State. The condition exists differently there than it is in New Orleans or east of the Ohio in that respect, and it occurs to me there is no reason why they ought to be obliged to wait a year before they can organize a savings department under this act. It would make a loss of time after the going into effect of the new act which, it occurs to me, would seriously affect business.
Senator Hollis. Do you not think those banks would rather continue under the present system, by courtesy of the Comptroller, than to adopt a hard and fast law like this?
The Chairman. A good many of the bankers have objected to the savings-bank provision, because of new rules and regulations that would perhaps change the class of investments, and that is the reason the Senator asked you that question.

Mr. Bassett. Well, as they are doing business now, they pay no particular attention to it, but there would be safeguards thrown around this savings department, relative to the withdrawal of deposits, that, to my mind, would be a safety. We all know in times of panic the savings-bankdepositor is the fellow that is scared first, but you take a savings bank doing business and they can put up a signin their teller's window, "We have taken 60 days' notice,'' and leave the doors open and go on and do business. If a national bank at the present time is running a savings department, and they put a sign in their teller's window, "We have taken 60 days' notice," they would either be flooded with depositors after their money and would have to close up the commercial department, too, or shut their doors immediately.
Senator Holllis. Do you feel at present the savings departments are rather loosely conducted and ought to have safeguards thrown around them?
Mr. Bassett. They are not as safely conducted as the average savings bank throughout the country; no.
Senator Hollis. Ought they to be? What is your opinion about that?
Mr. Bassett. My opinion is that the deposits of the savings bank can use a little different class of investments than the deposits of the commercialbank.
Senator Hollis. Just give me your opinion whether you think they are too loosely conducted now and ought to have more safeguards thrown around them.
Mr. Bassett. I do not know as I would care to say they are too loosely conducted. I would prefer to say I think it would be better if they were limited as to their class of investments for the savings department.
The Chairman. You have a State bank, I believe, have you not? Mr. Bassett. The bank of which I am president is the Aberdeen National. I have six State banks operating under State laws, but I only referred in this matter to the national-bank proposition. I have taken some pains since this law has been under consideration to ascertain the condition of the country banks, and the large majority of them feel that it would be onerous under the present restrictions; and unless it was quite materially changed, in respect to some of the suggestions that nave been offered from time to time, they would be very apt to go under a State charter. And I do know that the State department of banking expects a large increase in their department if this law should go into effect as it is.
Senator Crawford. You think it would be much more just to the class of banks, such as those in South Dakota, if under the bill it was made optional with these small banks to subscribe or not subscribe to the stock of these regional reserve banks, do you not? You think that would be much more just than to leave it as at present?
Mr. Bassett. I think it might be much more just, but I do not think you would get one of them in. I do not think they want the safeguards.
Senator Crawford. They would not exercise the option in favor of coming in?
Mr. Bassett. I do not think they would under the present condition. I think if it is modified they would.
Senator Crawford. I think perhaps some of the larger banks they have in Sioux Falls, Lead, or any large town might think they could use the rediscounting feature of this Federal reserve bank, while the smaller banks in the smaller towns would not be able to see any benefit.
Mr. Bassett. That might seem so, but in the case of Sioux Falls, the largest town in the State, there are the two largest banks in the State. They are State banks. I do not think they have any idea of conducting a national bank under any conditions. It does not necessarily follow that the nationalbanks will always have the largest business in the towns.
Senator Bristow. Mr. Bassett, if this system was established, there would be some of the large banks in the commercial centers that would come into it, probably a number of them. They could get these rediscounts on their paper. They would be desirous of your deposits or the deposits of the State banks, and they would want to be your correspondents the same as they do now, and they would guarantee to take care of you in time of trouble through this reserve bank, which they could go to doubtless in order to secure your business, would they not?
Mr. Bassett. The reserve banks you are speaking of?
Senator Bristow. Yes.
Mr. Bassett. Not the regional banks, but the reserve banks? Senator Bristow. The reserve banks that were members of the regional banks.
Mr. Bassett. Oh, I think they would be just as anxious for our business as they are now, from their standpoint.
Senator Bristow. And so far as getting help in time of trouble is concerned, you would not have to be a member also of the regional reserve bank in the practical operation of business?
Mr. Bassett. Under this bill?
Senator Bristow. Under the bill.
Mr. Bassett. As national bank I would have to be.
Senator Bristow. But you would not have to be a national bank.
Mr. Bassett. No.
Senator Bristow. You could give up your charter and take a State charter. Mr. Bassett. Yes.
Senator Bristow. And let the burden rest on the other fellows.
Mr. Bassett. That is what I say will be the result of the bill if it stays as it is, but I think you gentlemen will make amendments to it.
Senator Bristow. Do you think there ought to be any change made in the national-bank law?
Mr. Bassett. I do not pose—I pose more as a practical banker than I do as a critic of the present national system, only I do know this, that the currency problem under the present law lacks elasticity. We have that illustrated very strongly by the banking experts, also in the accumulation and pyramiding of reserves.
Senator Bristow. The reason of my asking you is because you are a practical banker. I get a good deal more information that is useful to me from practical bankers than theorists, and that is the reason I like to have actual bankers come in, because they give us practical notions as to how it would affect business and not theoretical notions what ought or ought not be or might happen to be. Your trouble, then, if there is trouble with thenational-bank law, is not in the national banking law so much as in the elasticity of your currency?

Mr. Bassett. Yes; and particularly at the crop-moving time, when we do require a great deal of currency.
Senator Bristow. Yes. So if provision was made whereby you could secure additional currency upon your assets, temporarily, from the subtreasury or from a bank—a Government bank of some kind— there is not any other relief you can think of that would be desirable?
Mr. Bassett. In general. I would consider that that was the desired point, and that is the weak point in the present nationalbank law.
Senator Bristow. What reserve do you carry in your vaults; what per cent of your deposits?
Mr. Bassett. The law requires 6 per cent. We carry probably 8 to 10 per cent.
Senator Bristow. Eight to ten per cent. What per cent of your deposits do you carry with your correspondents?
Mr. Bassett. Well, 25 per cent, in round figures. Our total reserve runs from 30 to 35 per cent in our case.
Senator Bristow. You find that necessary to handle your business properly?
Mr. Bassett. We find that necessary to handle our business properly and expeditiously, and at the same time to make it perfectly safe.
Senator Bristow. So that this reduction from 15 to 12 is a matter of no consequence?
Mr. Bassett. It does not affect us. I do not think, except in theory, it affects hardly any bank.
Senator Bristow. If you became a member of this new banking system and deposited your reserves with the regional bank, as you would have to do, what deposits would you find it necessary to keep in the present commercial centers where you now have your reserves, anyway? *
Mr. Bassett. I do not see that it would change the condition as to how much money we would have to have in the reserve cities, like Minneapolis, Chicago, and New York, than what it is new, except part of it. instead of being in the present reserve banks, would be in the regional reserve bank. I do not know of any reason why it would change the general trend of business or require less money in Chicago than it does now.
Senator Bristow. You carry a reserve in New York?
Mr. Bassett. Yes, sir.
Senator Bristow. Of what per cent?
Mr. Bassett (continuing). Because we have to.
Senator Bristow. You keep that there as a matter of business?
Mr. Bassett. On account of the transfer of funds, particularly. I do not think the average western bank carries as much money in New York nowadays as it did 10 years ago.
Senator Nelson. They have not since 1907.

Mr. Bassett. I think. Senator, they all learned something in 1907. And then there is the further reason that Chicago answers the purpose of our country in an exchange way that it did not answer some years ago. In other words, it is becoming more of a reserve center.
Senator Weeks. What did you learn in 1907?
Mr. Bassett. We learned with the first notice that currency was a shy article and we should not receive any from New York. We felt it coming down the line.
Senator Weeks. Did you receive any?Mr. Bassett. Did we receive any notice?
Senator Weeks. Yes.
Mr. Bassett. I received a telegram from Chicago and a phone message from Minneapolis. The phone message from Minneapolis stated that the New York banks had shut off and they were not receiving currency from any source. Consequently, they shut off on us.
Senator Weeks. Did you ask New York for any circulation at that time?
Mr. Bassett. No, sir.
Senator Weeks. Had you ever done it?
Mr. Bassett. I have borrowed money in New York.
Senator Weeks. I mean, have you asked for currency from New York?
Mr. Bassett. No, sir.
Senator Weeks. You have never done so?
Mr. Bassett. It is too expensive. We are willing our nearest reserve bank should pay the express on it rather than ourselves.
Senator Weeks. Yes. What I was trying to get at was, if you did, in 1907, ask New York for any currency?
Mr. Bassett. No, sir; because I thought I knew better.
Senator Weeks. Why did you know better?
Mr. Bassett. I read the papers every day, and I took my banker's word in Chicago that he could not get any currency.
Senator Weeks. Do you not know that the bankers, wherever they did ask for it in New York, did get currency from that center?
Mr. Bassett. No, sir; I did not know that fact.
Senator Weeks. Did you ever undertake to find out whether they did or not?
Mr. Bassett. I took their word for what they told me.
Senator Weeks. Don't you know perfectly well, Mr. Bassett, that every banker was trying to husband his own resources at that time, naturally enough?
Mr. Bassett. Yes, sir.
Senator Weeks. You and every other banker? 
Mr. Bassett. Yes, sir.
Senator Weeks. And don't you know every banker was discouraging any man who wanted to obtain currency, fearing that he would be short at the same time when he actually needed itf
Mr. Bassett. Yes, sir.
Senator Weeks. And is it not probable that your Minneapolis and Chicago bankers passed along that word to you from New York because they did not want you to draw on them?
Mr. Bassett. I think every banker was endeavoring to conserve his own resources.

Senator Weeks. You know at the beginning of the panic, the New York bankers had the reserve, didn't you? Mr. Bassett. I understand they did.
Senator Weeks. And you know at the end of the panic they did not have the reserve?
Mr. Bassett. I am not laying any particular claim against the New York bankers but what they did the best they could for the country.
Senator Weeks. I am trying to find out what you learned in 1907. Wasn't it a fact that the comptroller's report in December, 1907, shows that the country banks had increased their reserves and the reserve city banks had decreased theirs during the panic?
Mr. Bassett. I will take your word for that.
Senator Weeks. You may take my word, but the figures show it.
Mr. Bassett. You ask if I know it. I am not familiar with the figures enough to know it, at this minute, but I am inclined to think so.
Senator Weeks. I simply want to determine from you whether you were refused currency by your New York or any other reserve agent?
Mr. Bassett. Yes; I was, by other reserve agents.
Senator Weeks. You were by other reserve agents. Now, what would your deposits in a year with your reserve agents amount to?
Mr. Bassett. The average?
Senator Weeks. The volume. Last year how much do you suppose you deposited with your reserve agents?
Mr. Bassett. Oh, I do not know. Our average balance would probably be $275,000.
Senator Weeks. Do you suppose you deposited $25,000,000?
Mr. Bassett. Somewhere in that neighborhood.
Senator Weeks. How much of that was currency?
Mr. Bassett. A small part of it.
Senator Weeks. What per cent?
Mr. Bassett. Five per cent, maybe.
Senator Weeks. How much currency do you suppose you have received from your reserve agents during the past year? As much as you deposited?
Mr. Bassett. About 10 times more. Senator Weeks. About 10 times more. Now, do you think on the whole (I ask you this question without any prejudice), that you are entitled to ask your reserve agent for something you do not deposit with him? Mr. Bassett. Yes.
Senator Weeks. In other words, if you deposit credit and not currency, do you think you are entitled to currency? Mr. Bassett. Yes, sir.
Senator Weeks. Suppose he sent back the credit?
Mr. Bassett. I think we are entitled to currency, because we send him items on which he could go over to the Treasury or the subtreasury and get currency.
Senator Weeks. That is quite true. But in 1907 he could not do it, could he? Now, I am not complaining of you, and I am not complaining of the reserve agent, but I am simply trying to demonstrate that it was at the head the system broke down. The reserve city banks had no resources from which they could replenish the currency which their customers were entitled to call on them for. and that is one of the things we want to correct now. We want in some way to provide so that the banks everywhere—in the reserve centers and everywhere else—will be able to get circulation whenever they need it—in trying times as well as in normal times; and it is the system, at the head, that broke down in 1907.

Mr. Bassett. All right; but don't understand me to say I don't think that the currency issue in this bill is not the good feature of it.
Senator Weeks. No.
Mr. Bassett. I say it is the good feature, and the only one I see of any moment.
Senator Weeks. I rather got the impression from your manner of answering Senator Nelson's question, that you were critical of the reserve banks; that they did not do what they should have done in 1907.
Mr. Bassett. I do not mean to cast that reflection. I mean to say that the panic of 1907, I believe, has caught every conservative banker the nearer home he can keep his reserve the better.
Senator Nelson. That is the point.
Mr. Bassett. I never had better treatment in my life than from my New York correspondent, with whom I have had an account for 24 years.
Senator Weeks. You mean in regard to their being mobile, that you can keep your reserve better nearer home?
Mr. Bassett. In the main, actually nearer home. If there was a reserve city at Minneapolis, I would prefer to keep it as near there as
fracticable if it will answer my practical purposes for exchange, and think, to a great extent, that is a reason why the money is now kept in Chicago.
Senator Weeks. In other words, Chicago banks are stronger? 
Mr. Bassett. Sure.
Senator Weeks. How much money did you make last year, gross? I do not think I am asking a personal question, because I suppose you make that statement in your statements which you make to the comptroller.
Mr. Bassett. We do; but that is not for general publication. Individually, as far as my banks are concerned
Senator Weeks (interposing). Do you have any hesitation of telling what you made?
Mr. Bassett. I have no hesitation in telling the dividends.
Senator Weeks. What is the capital?
Mr. Bassett. $100,000.
Senator Weeks. Let us suppose you made $30,000 gross and $20,000 net. What percentage of that was made from exchange?
Mr. Bassett. There is not enough difference between the two allowances there.
Senator Weeks. I know there is not; but you are not inclined to tell me what the real facts are, so I am supposing it. I know what the difference ought to be.
Mr. Bassett. I did not wish to cast any reflection
Senator Weeks (interposing). How much of that did you make from exchange?
Mr. Bassett. About $5,400, in your figures, and that is what our exchange was. I would just as soon tell you that. Senator Weeks. Your exchange was $5,400? Mr. Bassett. $5,400 last year.
Senator Weeks. Have you figured out in your own mind whether, if the present bill, the pending bill, became alaw, there would be any material saving in exchange to the business community?
Mr. Bassett. To my own local business community I do not think there would be any. 1
Senator Weeks. Of course it is not, I assume, the desire of this committee to do anything to interfere with the normal course of business, but the cost of collections in this country is a very large item. And while we are considering the problem, if there is any way of reducing the cost of collections within reasonable limits, we ought to adopt it. Now, the complaint that has been made by the country bankers, without exception, I think is that if the pending bill is adopted it will materially curtail their earnings, and that is one of the main reasons why they object to it. Mr. Bassett.That, I think, is correct.
Senator Weeks. If it is to curtail their earnings, will there be a benefit to the business community commensurate with that lessening of earnings?
Mr. Bassett. No, sir; I think not. I do not think there would be any benefit to the business community.
Senator Weeks. Have you figured that out pretty correctly, so that you feel justified in making that statement?
Mr. Bassett. Yes; I feel—you understand, not one person or two persons, or two concerns, paid this, but this $5,400 was in 10-cent items, or possibly 15-cent items, scattered over the whole territory over which the checks circulated. That was paid by the Chicago merchants, the St. Paul merchants, and some or it by the New York merchants, and I think the burden of that amount was broadly scattered. It is not a burden, sir, on anyone, and it will make quite a difference to the banker.
Senator Weeks. Let us take your individual case, Mr. Bassett. If we pass the bill as it came from the House, and it becomes a law, what are you going to do as president of the Aberdeen bank?
Mr. Bassett. I can tell you what I think I am going to do.
Senator Weeks. Of course, you can not say definitely because you have your stockholders to consult and your directors, and all that sort of thing. But what would you be inclined to advise them to do?
Mr. Bassett. I am inclined to think I would advise them to take out a State charter and be able to compete with our neighbors across the street and our neighbors in the other block.
Senator Weeks. Assume that you do that and the bill passes in its present shape, and the exchanges are so diverted that they go through the regional bank; do you think you are going to be able to compete successfully with the member bank under those circumstances?
The Chairman. What is that question, again?
Senator Weeks. Excuse me. I did not intend to turn away from you. I am asking if the Aberdeen National Bank gives up its national charter and takes out a State charter, if Mr. Bassett does that, and a material part of the exchanges are diverted so that they are to go through the regional bank, if he thinks he can compete successfully with the member bank in his own community.

Mr. Bassett. Yes; I still think I could. I certainly would not be any worse off than they are, and I might be better off.
Senator Weeks. Now, from your own standpoint, what do you think we ought to do in changing this bill, to make it satisfactory to you, so that you will become a member bank and so that you will change your State banks into national banks, and they become member banks?
Mr. Bassett. Well, the recommendations I have been talking about are the changes—two or three of them 1 have been talking about. One was the change in allowing longer time paper to be used for discount.
Senator Weeks. Then, if we take your testimony, as your opinion and adopt what you have suggested, you would feel justified in doing that, would you, in becoming a member bank and taking out national charters and having your State banks become member banks, as well?
Mr. Bassett. Some of them, yes. I am inclined, however, to say this—do not understand me that I am opposed to everything in this bill.
Senator Weeks. Nobody is, Mr. Bassett. Mr. Bassett. I think it has some good features. Senator Weeks. Everybody agrees there are a good many good things about it.
Mr. Bassett. Yes; I do not want you to think, sir, that I think that.
The Chairman. What are the good features, as you understand it? Mr. Bassett. The principal good features—you mean in the bill as it stands? TheChairman. Yes.
Mr. Bassett. Oh, in the bill just it stands, I do not see many good features.
The Chairman. Do you see anything whatever good in it? If you do, I would like you to mention it. If you do not think there is, I would be glad to have you say that.
Mr. Bassett. Oh, I do not know as I care to go on record exactly as passing on the bill as a country banker. I do not think I care to put my opinion up against all you gentlemen in the Senate and House about that.
Senator Hitchcock. Would you be willing to take it after we get through?
(No answer.)
The Chairman. Do you know who the author is? Mr. Bassett. I assume the names of the parties that appear on the bill.
Senator Weeks. Mr. Bassett, you were asked by the chairman who, and we would like to know.
Mr. Bassett. I say I assume the parties whose names appear on the bill.
Senator Shafroth. Do you not think the right to go to the reserve bank with GO and 90 day paper and discount it and get the money for it is a very valuable and good thing in the bill?

Mr. Bassett. If I had a sufficient amount of that paper I would think it was.
Senator Shafroth. Would you not have, if you were in distress, and wanted to get money to meet a run on the bank? Wouldn't you think it pretty much of a salvation to you?
Mr. Bassett. I am inclined to think that the bill would overcome a panic condition, such as existed in 1907?
Senator Shafroth. Are not the panic conditions the most serious conditions to the bankers?
Mr. Bassett. Yes, sir.
Senator Shafroth. And this bill, at least, would remedy that condition, would it not?
Mr. Bassett. I am inclined to think it would overcome that condition. I do not know as I know of any other features.
Senator Shafroth. Don't you think the right to get new currency into your community by hypothecating commercial paper would be a good thing, independent of the amount that is coming to you?
Mr. Bassett. Do you mean because it is new, instead of old?
Senator Shafroth. No; but because there is a shortage of money and there will be more money to relieve a strain.
Mr. Bassett. I do not agree with you on that point, because I think we would have to pay out more money than we would get back under the percentages required in the act.
Senator Shafroth. You would hypothecate }'our securities. You would not pay any money in the reserve bank. You would go and get money issued to you, according to this bill?
Mr. Bassett. Oh, yes; you would pay 10 per cent of the capital.
Senator Shafroth. I mean in times of stress.
Mr. Bassett. You would still have times of stress.
Senator Shafroth. Certainly, you would; but would that be an inducement, in your opinion? You would be drawing 5 per cent interest and get 40 per cent of the net earnings?
Mr. Bassett. That is where I differ with you. I do not think we would be drawing anything.
Senator Shafroth. That may be, but the bill allows it, anyway?
Mr. Bassett. Yes.
Senator Shafroth. Don't you think you would be drawing anything? Don't you know the United States Treasury would deposit every dollar of general revenues now in these banks?
Mr. Bassett. Yes.
Senator Shafroth. And don't you know that amounts to about $285,000,000?
Mr. Bassett. I will take your word for the figures. Senator Shafroth. Don't you think that money would earn something to go toward a dividend or interest of 5 per cent on the capital stock?
Mr. Bassett. If you went into the general banking business, I think it would.
Senator Shafroth. They are not going to hold the money away from the people, are they?
Mr. Bassett. It looks to me like a lovely theory.
Senator Nelson. One thing, Senator Shafroth, you overlook, is that under this new tariff bill they won't have that much money. [Laughter.]

Senator Shafroth. That depends. They say they will have $18,000,000 more after that. Don't you think, Mr. Bassett, that would be a great advantage to your bank, if it goes into this thing? It will get such a large amount of deposits on which to loan out, and there may be an income to the regionalbank coming back.
Mr. Bassett. No, sir; I don't think so.
Senator Shafroth. You don't think so?
Mr. Bassett. No, sir
Senator Shafroth. You think they are going to lock that up there and not let anybody have any of that money, do you?
Mr. Bassett. I do not see how they are going to make 5 per cent, unless they^ojnto the general banking business; but I would not
Senator Shafroth. Don't you think the money you put into this regional bank, as your reserve—do you suppose they are going to lock that up and not have any income on it at all? 
Mr. Bassett. No; I don't think they are going to do that. 
Senator Shafroth. They are going to let it out, are they not? Mr. Bassett. I mistrust so; but it does not say under the bill what they are going to do.
Senator Shafroth. The bankers elect six of the board of directors in the regional bank. Mr. Bassett. They do not elect anybody on the general board. Senator Shafroth. They elect three directors. Mr. Bassett. In the regional bank?
Senator Shafroth. Yes. They elect three to represent the agricultural, commercial, mechanical, or industrial interests of the district, do they not?
Mr. Bassett. Yes.
Senator Shafroth. They are chosen by the banks themselves, those six? Mr. Bassett. Yes.
Senator Shafroth. Are they going to sit down and do nothing with this money and make nothing for the regional bank?
Mr. Bassett. If the main board tells them to do nothing, I think they will.
Senator Shafroth. Do you think the main board would tell them any such thing as that? Do you not think they want to make a success of it?
Mr. Bassett. Of course, if the Government is going into the general banking business, for the sake of making money, making 5 percent on whatever money is in that regional deposit, I am. ofcourse, inclined to think the country banker would be more strongly opposed than ever.
Senator Shafroth. The powers of this regional board are simply directory and supervisory. They do not go into the loaning and discounting personally. They are not in the banking business anymore than the Comptroller of the Currency right now is in the banking business, or to a much greater extent.
Mr. Bassett. No; but it has a pretty good control, you know.
Senator Shafroth. So has the Comptroller of the Currency got a right to make suggestions.
Mr. Bassett. They are received too, and acted upon.

Senator Shafroth. You do not suffer any hardship because of the supervision of the Comptroller of the Currency?
Mr. Bassett. No, sir; I do not regard him as a competitor. I regard his control as proper.
Senator Shafroth. You think when this bank does not receive business outside, in competition with banks, that it is going to be a competitor of the member banks?
Mr. Bassett. I think it would have to be if it is going to earn its dividends. According to what you say I am not inclined to think so.
Senator Shafroth. That is all.
The Chairman. Who is your other witness?
Mr. Bassett. Mr. Jewett, a wholesale man from Aberdeen.
Mr. Shafroth. I want to ask one more question, please. Do you think that this rate that should be paid to the bank should be 6 or 5 per cent? We have had a great difference of opinion on that.
Mr. Bassett. I do not think it will cut any figure, because I do not see how it is going to earn either one, so I am as perfectly satisfied with 5 as if you make it 6.
Senator Hitchcock. I was not in when you testified in chief, Mr. Bassett, and I wanted to ask you a question, or perhaps a series of questions. Suppose a subtreasury of the United States were located in your State, or conveniently thereto, with the facilities for advancing national banks currency to the extent of 75 per cent of their capital, upon the deposit of adequate security, at a reasonable rate of interest so designed as to force the retirement of the loan within a few months, would that facility be of any considerable addition to the bank facilities of your State?
Mr. Bassett. Let me ask you, what is the basis of that loan?
Senator Hitchcock. The basis would be the deposit with the agent or the subtreasury of adequate security consisting either of United States bonds at par. State bonds at 90, municipal bonds at 90, or commercial paper at 80 per cent of the face value. Suppose there was a subtreasury within a few hours of your town, and you could, upon the deposit of such securities, get as a matter of right 75 per cent of the capital of your bank?
Mr. Bassett. I think that would be an advantage. I think it would be generally considered by the banks to be an advantage.
Senator Hitchcock. It would be in addition to all the other facilities you now enjoy through your banking connections?
Mr. Bassett. Yes, sir.
Senator Hitchcock. What rate of interest, under such conditions, would you consider reasonable?
Mr. Bassett. I would think there is not any reason why that should not be at the current rate that was in vogue at the time—the current rate for that locality.
Senator Hitchcock. What length of time would such discounts generally be required for? How many months?
Mr. Bassett. You mean in the particular part of the country I represent?
Senator Hitchcock. Yes.
Mr. Bassett. We are obliged to take so much six months', seven months', and eight months' paper that I would say the average would be from five to six months.
Senator Hitchcock. Where do you rediscount now?Mr. Bassett. If I were rediscounting I would discount with my reserve agents in Minneapolis, for instance.

Senator Hitchcock. Minneapolis, Chicago, or New York? Mr. Bassett. Minneapolis, Chicago, New York; yes.

Senator Hitchcock. And all those facilities under this plan would be retained and this subtreasury would be additional to what you have now and without detracting anything at all from the relations you maintain now? The national-bank examiner comes to your national bank twice a year, about?
Mr. Bassett. Yes, sir; he comes to our bank about twice a year. Senator Hitchcock. Does he get such a knowledge of your paper as to enable him to pass, in a way, upon its value?
Mr. Bassett. I think so. He gets a good deal better information about it than he used to. He goes into detail a great deal more than he used to, and the examinations are a great deal better.
Senator Hitchcock. He genarally makes a list of large borrowers? Mr. Bassett. He makes a list which, I understand, he compares with their reports.
Senator Hitchcock. Such a list would be deposited with the subtreasury for reference?
Mr. Bassett. Yes. Senator Hitchcock. So that the subtreasury would have all the knowledge that the Treasury now has in regard to the national bankin any particular district?
Mr. Bassett. Yes.
Senator Hitchcock. And you think if such an arrangement could be made it would be of material assistance to the banks? Mr. Bassett. I think it would.
Senator Hitchcock. In times of stress and seasonable demands for funds it would be of considerable assistance? Mr. Bassett. I think so.
Senator Hitchcock. Have you examined the pending bill in order to ascertain whether an individual bank would, as a matter of right, secure any discounts from a reserve bank?
Mr. Bassett. From a regional reserve bank?
Senator Hitchcock. Yes.
Mr. Bassett. I would say they could.
Senator Hitchcock. Suppose you found there is no provision in the bill assuring a bank which had put in one-tenth of its capital and one-half of its reserve, that its paper is going to be discounted?
Mr. Bassett. Suppose I found that in the bill?
Senator Hitchcock. Suppose you found there is no such provision in the bill making any such guaranty of that sort; suppose that it not discretionary with the regional reserve bank directors. Would you think that is an objection?
Mr. Bassett. Of course; we object to it as it is now.
Senator Hitchcock. I understand you do.
Mr. Bassett. If we start out on that basis, I think the bill ought to be amended.
Senator Hitchcock. That is my opinion. That is what I am calling to your attention, that after a bank has been required to put in one-tenth of its capital and one-half of its reserve, it is given no guaranty that it can have any part of its paper discounted; that the whole matter is left discretionary with its reserve bank directors?

Mr. Bassett. I think that should be amended. At the same time I would give the authors of the bill—no one claims authorship—I do not think they played a hocus pocus game. The bill is designed to give banks relief.
Senator Hitchcock. We are designing a bill to give each bank certain relief. I want to ask you how much paper you think a reserve bank ought to be required to discount for a member bank?
Mr. Bassett. You mean what proportion of their capital; on that basis?
Senator Hitchcock. Either upon its capital or upon its portfolio of loans. Suppose you are running a national bank, and there is another national bankacross the street, and you want to have some paper discounted and you find you are only able to secure discounts to the extent of one-third of your capital, whereas the bank across the street is able to secure discounts to the total amount of its capital. What do you think would be the result of that favoritism?
Mr. Bassett. It would not be very favorable to me.
Senator Hitchcock. It would be a pretty serious matter if your bank was discriminated against?
Mr. Bassett. Of course, that is one of the objections to the bill, that there is a certain amount of political control.
Senator Hitchcock. It is not necessarily political. I think we have got to guarantee to each bank some relief, and upon the other hand, we have got to limit the amount that can be taken by any bank.
Mr. Bassett. I would suppose that when the question came up, if a bank was unreasonable in its demands, the board of directors of the regionalbank would be justified in considering that. I assume the members of that board would be the judges of that fact somewhat.
Senator Hitchcock. Suppose you had $100,000 in a bank and you had $800,000 of loans, would you think it would be reasonable for the regionalbank to rediscount $1,400,000 of that paper? Do you think there ought to be a limit to make that impossible * Do you not think there ought to be a limit somewhere?
Mr. Bassett. I think that would be better and safer. I have never been accustomed to borrow and loan again on that. That has not been my training.
Senator Hitchcock. You think if a subtreasury plan were adopted 75 per cent of a bank's capital would be a reasonable amount for it to be permitted to borrow of the Government?
Mr. Bassett. I would think so.
Senator Hitchcock. And if all the national banks did that at the same time, that would take out only $700,000,000 of extra currency, and if the bank?in different parts of the country would take it out at different times in the year, the amount at any one time would probably not be more than half of the possible limit. What do you say in regard to that proposition?
Mr. Bassett. That amount of currency would be a safety limit.
Senator Hitchcock. Do you think that would be an inducement to increase the capital of banks?
Mr. Bassett. I think that would apply in the smaller banks of $25,000 capital. I do not believe it would affect the larger ones very 9328°—S. Doc. 232,63-1—vol 2 46

much. Of course, there are quite a good many national banks in which the amount of surplus and undivided profits is much larger than the capital. There might be a little switch there if it was limited to 75 per cent of the capital.
Senator Hitchcock. That would be better for the depositors?
Mr. Bassett. There would be that much more elasticity.
Senator Crawford. Mr. Jewett, one of our wholesale grocers, is here, Mr. Chairman, and would like to be heard.
The Chairman. At 12 o'clock the Senate meets, and we have therefore only a few moments before that hour in which to hear him at this time. The committee can adjourn at noon to meet on the Senate side of the Capitol; but if Mr. Jewett desires, he can speak to us until 12 o'clock.
Mr. Jewett. Mr. Chairman, I am only here this morning for the purpose of cooperation with Mr. Bassett, from Aberdeen, in regard to the question of the time of the paper in our section of the country.
I have been in the State of South Dakota for 30 years, in the wholesale business, and come in touch with paper of all kinds which comes through the merchants to me, and, as I read the bill, the time is not long enough for paper coming to me through him and his bank. Mr. Bassett asked me to come here and corroborate his statement in that respect.
The Chairman. What length of time do you extend to your customers?
Mr. Jewett. It varies. Ours is almost entirely an agricultural country.
The Chairman. I am asking you about the time.
Mr. Jewett. Our paper runs either 6, 9, or 12 months.
The Chairman. You sell goods on 12 months' time?
Mr. Jewett. If a man can not pay his bill, we take his note, with interest, and we keep it until his crop is harvested. We are able to do it.
The Chairman. What is the volume of your paper. What time do you give, ordinarily?
Mr. Jewett. Our regular terms are 30 and 60 days and four months.
The Chairman. Sometimes you renew it on account of the necessities of the case? Mr. Jewett. We may be compelled to.
The Chairman. It sometimes happens that you will renew it, if necessary?
Mr. Jewett. That is sometimes the case. We have some accounts which we have to carry for another year, and we put them in the form of notes.
The Chairman. And you carry it as an open account?
Mr. Jewett. Yes, sir. Mr. Bassett's suggestion about the time is a very good one, and I came here with him only to corroborate his statement with regard to the time of the paper in our section of the country.
Senator Bristow. You discount these notes at the bank sometimes, do you?

Mr. Jewett. Yes, sir; sometimes.
Senator Bristow. You sign them and stand good for them? 
Mr. Jewett. Yes, sir.
Senator Bristow. Now, if a bank took those notes and sent them down to Chicago or to St. Paul and sold them to a bank there and you had to pay them when they were due, would your customer know anything about where the notes were when they came due?
Mr. Jewett. What notes we take, Senator, at the present time, we take to Mr. Bassett's bank. We do business with him. We do not take a certain form of note; we take an acceptance and stamp across it " Payable at the Aberdeen National Bank, at a certain time, and at a certain rate of interest, and it is accepted by him.
Senator Bristow. Suppose the acceptance was disposed of at a regional bank and the man could not meet it, what does he do when it is due. Does he pay it, or do you extend it? How do you handle it when it is due and not paid?
Mr. Jewett. We would have to pay it ourselves and take another note, and take that up.
Senator Bristow. Do you have much of that?
Mr. Jewett. Not much, recently. The item in regard to farm loans is another one of which Mr. Bassett spoke. The average farmer in our country does not borrow money on a year's time for any improvements, or any addition to his real estate holdings. He will borrow for two, three, five years.
Senator Bristow. Three or five years, as a rule?
Mr. Jewett. Yes, sir.
Senator Bristow. What do you think of farm loans as security? Mr. Jewett. I know of none better.
Senator Bristow. A farmer's loan, conservatively made, is as good as anything?
Mr. Jewett. It is; I should myself so consider it, taking it on a basis of 50 per cent value.
Senator Bristow. If there were means provided for a market, a ready market, for such loans, so that a man could have one of them and get cash on it when he wanted it, it would be very advantageous, would it not, to that class of security, in the lowering of the rate somewhat, and make it more desirable?
Mr. Jewett. In our section of the country?
Senator Bristow. Yes, sir; if there was a market for those securities, at all times. Mr. Jewett. Yes, sir.
Senator Bristow. Now, why should not a farm loan be used as the basis for credit in these regional banks, for curency or for rediscount, or any other kind of business?
Mr. Jewett. There should be none that I can see.
Senator Bristow. And these acceptances of your merchants—they are called here by the witnesses who have been before us, prime commercial paper. Do you think that is any better security than a mortgage on a good farm out there?
Mr. Jewett. No, sir.
Senator Bristow. If you had a lot of funds entrusted to you for investment, where you wanted them to be absolutely secure, and safely invested, would you or not prefer farm loans to these acceptances?

Mr. Jewett. Yes, sir; I would.
Senator Bristow. I am very glad to hear a business man who is dealing in stocks of goods and acceptances, and things of that kind, state what is absolutely a fact, and therefore knows it and will admit it.
Senator Crawford. Mr. Jewitt, the objections in the West, and in agricultural communities to this bill are based very largely, are they not, upon these particular points to which Mr. Bassett calls attention?
Mr. Jewett. My attention was called to these features of this bill.
Senator Crawford. Outside of that, do you hear objections to governmental control of this bank, and to the mobilization of these reserves, and to having greater elasticity in the currency? Do the people out there really object to those features of this bill?
Mr. Jewett. 1 am no banker. Senator. I know something about the banking business through acquaintances with friends of mine who are in the business. I am not a holder of any stock in any bank, but I have, since this matter has been widely discussed, heard remarks by different bankers regarding what bankers think of this matter, and there seems to be among the bankers a very hard feeling against a good many features in this bill as it now stands.
Senator Crawford. Outside of these particular points you are emphasizing?
Mr. Jewett. Yes, sir. But they are looking at it from their sicre.
Senator Crawford. I got the impression that the people out there were not hostile to this bill, so far as the other features were concerned, but I know they do object seriously to it upon these points, which have been emphasized here by these two witnesses. I am satisfied on that point, but as to the other provisions of the bill I have not heard much in the way of objections.
The Chairman. We are very much obliged to you, Mr. Jewett.
Are there any other witnesses from South Dakota who desire to be heard at this time?
Mr. Jewett. I do not believe there are now.
(Thereupon, at 11.45 o'clock, the committee took a recess until 12.30 o'clock p. m.)

AFTER Recess.
The Chairman. We will now hear from Mr. James C. Hallock.

Mr. Hallock. Mr. Chairman and gentlemen, you have before you a novice in making addresses. In my experience I have never before had so distinguished an audience as I have the honor of addressing to-day.
The country does not realize the admirable make-up of this committee and its truly representative character. We have on this committee four ex-governors, an ex-lieutenant governor, a former distinguished justice of the supreme court of my State; and every member of the committee is a man of well-known ability. This committee represents four States at salt water—New Hampshire, Massachusetts, Connecticut, and my own State of New York. It represents Ohio

fice and neglect of my duties upstairs. But I will not stay unless you get to the point without any further loss of time. 

Mr. Hallock. I come to it now.
The Chairman. You have now stated that the Government withdrew currency instead of leaving it on deposit in the banks. Was that one of the contributing factors?
Mr. Hallock. Yes, sir.
The Chairman. I understand you.
Mr. Hallock. Now, I am ready to give you the other part. 
The Chairman. Please proceed.
Mr. Hallock. There was a speculation in copper, in shares of the United Copper Co. Senator Nelson. Yes; I know about that.
Mr. Hallock. There were great losses, and all that sort of thing, which involved the president of a bank, Heinze, head of the Mercantile National Bank. The failure of the concern he was connected with in that speculation involved him to such an extent that the banking community were able to drive him out of the control of his bank. He and Mr. Morse and Mr. Thomas have been acting in ways that were very offensive to the New York bankers.
Senator Nelson. They were presidents of trust companies?
Mr. Hallock. No, sir; Mr. Morse was president of the National Bank of North America. Mr. Thomas was president of the Consolidated National Bank, and also connected with a chain of banks. But they had excited the animosity of the bankers. You must understand that. Then came this incident on the stock exchange connected with speculation in United Copper shares, I think it was, that went to smash, and Mr. Heinze could not remain as president of his bank without aid from other banks. They drove him out.
Senator Nelson. That is what started the prairie fire; you are on the right track now.
Mr. Hallock. Yes, sir; he was the first man. Then there was another man doing the same kind of work whom they were after, and that was Mr. Morse. Understand, I am not saying the bankers of my town are different from other people. These men had done things they did not approve of and they thought they were justified in taking some action.
You see, his bank had about $20,000,000 of deposits, largely due to interior banks. Just about this time there was a pressure on New York to send out currency. You know there was a general feeling of unrest coming on, and the correspondents of the National Bank of North America needed funds. The bank had to supply them. Pretty soon it got to a point, while the bank was perfectly solvent, where they had not the cash to send out, so they had to go to the clearing house for aid, and that moment the clearing house people knew they had Morse. So they put Morse out of his bank on Saturady night.
The Chairman. That was October 19?
Mr. Hallock. October 19, yes.
Senator Nelson. You are on the right track now. They started in to wipe out those fellows and punish them, and it was like a prairie fire; it got away from them.
Mr. Hallock. Yes; and I will get to that in a minute.
Senator Nelson. They did not intend, at the beginning, to do anything but go in and punish a few men.

Mr. Hallock. I will give you absolute proof of that.
Senator Nelson. I am beginning to think you are a statesman now. Go on. [Laughter.]
Mr. Hallock. Now, we got to Saturday night, and these bankers had been working hard all of Saturday to get rid of Morse. It was their chance, and their turn came late at night.
The Chairman. They told Morse to retire from his banks?
Mr. Hallock. Yes.
The Chairman. Did they not inform him they would not clear for his banks unless he got out? Mr. Hallock. Practically; they must have done that. The Chairman. He agreed to get out? Mr. Hallock. They forced him out. The Chairman. He agreed to get out?
Mr. Hallock. Oh, they forced him out; or, of course, they would have forced his bank to close. The next day is Sunday. The Chairman. What happened on Sunday? Mr. Hallock. I will tell you.
Senator Nelson. They did not go to church? [Laughter.] Mr. Hallock. No; they did not. Something happened on Sunday the newspapers did not find out. Senator Nelson. What was that?
Mr. Hallock. Something that on Monday the editorial comments of no New York paper, and of none in the country, contained the least notice of.
Senator Nelson. It was on that Sunday they were laying the plans to gobble up the Tennessee Coal & Iron Co.?
Mr. Hallock. No; that was a mistake. They were not thinking about that. That was not in their minds at all. They had no other intent than to clean house.
The Chairman. Please tell us what happened.
Mr. Hallock. A man had occasion to go down town to the Wall Street section on that day.
Senator Nelson. On Sunday?
Mr. Hallock. On Sunday; and to his great surprise he found the streets there, which are usually deserted on Sunday, lined with automobiles. He recognized the automobile of a bank president he knew very well. He went up to the chauffeur and asked, "Where is the boss?" The chauffeur replied, "I do not know."
Then this man did a little thinking. He thought there might be something going on at the clearing house, so he walked around the corner to Cedar Street, and noticed that the door of the clearing house was open, as on week days, with the same porter there he was in the habit of seeing at the door. He had the cleverness to ask no questions, but nodded to the porter and went upstairs. When he got upstairs he saw some 20 or 30 bankers. When they perceived him, one of them exclaimed, "Oh, this will not do." He pleaded, "I don't leak." Something was going on, and he said, "I have got to say something," meaning, I suppose, in his paper. In other words, he was in there and not going out, if he could stay. Pretty soon a banker over in one part of the room sang out, "Tommy is good enough for me." So Tommy stayed. In other words, they could not get rid of him, and he went with the bankers into their secret conclave.

The Chairman. What occurred?
Mr. Hallock. This occurred: A proposition was presented to the body that they should rid the banking community of Heinze and Morse and Thomas.
Senator Nelson. Out of the clearing house?
Mr. Hallock. Not only out of the clearing house, but out of the banking business.
The Chairman. As officers and directors of these banks, you mean?
Mr. Hallock. Yes, sir; and when they proposed this, this interloper, who, I like to believe, represented the people, got up and said, "If you do that there will be a panic."
Senator Nelson. Do you know his name?
Mr. Hallock. Never mind let me go on with my story. He said, "If you do that there will be a panic, and some one said, " It will all be over in three days." That was the belief of those men about what they were doing. Then they went on and discussed the matter further, and this man could not keep still. He was interested in banks. He was thinking, perhaps, of the effect it would have on his bank, and in a week or so he was behind its counter during a run on his own bank. He got up a second time and warned them that a panic would come.
The Chairman. In this Sunday meeting?
Mr. Hallock. In this Sunday meeting; yes, sir. That is, one of the Sunday meetings.
The Chairman. You are on the first Sunday meeting; do not get away from the first Sunday meeting.
Mr. Hallock. I will not; but the directors of the National Bank of North America and the directors of the Mercantile National Bank were also having meetings that same Sunday to elect successors to Morse and Heinze.
Now I have told you what I have learned from a man who volunteered the information to me and I have no intention of telling his name. It is not necessary, because the clearing-house committee met that night and made their own confession to the Associated Press and telegraphed to the corners of the earth.
Senator Nelson. What was that?
Mr. Hallock. I will show you.
Senator Weeks. Do you think you ought to come here and repeat a matter of that sort without furnishing this committee with the information on which it is based?Mr. Hallock. I will give you the information.
Senator Weeks. I mean the man's name. You were merely told about this matter.
Mr. Hallock. Yes, sir; in one sense it is merely hearsay. The Chairman. There were 20 men present, you say? Mr. Hallock. He said there were.
The Chairman. Did not the newspapers say that, giving the names of all the men who were there? Mr. Hallock. Yes.
The Chairman. And it appeared in the public prints the next morning?
Senator Weeks. Did this man's name appear? 
Mr. Hallock. No.

The Chairman. It is easy enough to ascertain from these men, to summon these men. We can summon these men.
Senator Nelson. I would like to have them here. That was merely started to freeze out two or three men, and it got away from them. That was the trouble, and I want that feature of the case investigated to the bottom, as it has not been done so far. I want to have these men shown up.
The Chairman. We can summon them all; do not be troubled about that.
Senator Weeks. Mr. Chairman, I am not troubled about anything; and I am not disturbed about this. But I do not think a witness ought to come here and give us anonymous information. I think that he ought to assist the committee; and if the committee is willing to give its time to listen to him, he ought to assist the committee to the limit of his information; then we could very easily determine whether we wanted to summon 15 or 20 men, if we had the man who furnished him with this information come before the committee, in order to find out what he really knew. It is not necessary to get
against the committee having to listen to anonymous information.
Mr. Hallock. If that was all the information I had, the case would be different. I have had that information since 1908. The man who gave it to me has never published it, and has no disposition to. The Chairman. Go ahead with the facts.
Mr. Hallock. I am going to call your attention to a statement of the clearing-house committee, about which there is no question. The Chairman.That appeared in the public prints? Mr. Hallock. You will find it in all the New York newspapers of that date. I got this from the New York Times of the following morning, October 21, 1907.
The Chairman. Read it into the record.
Mr. Hallock. "At a late hour last night the Associated Press was assured by the clearing-house committee that the Heinze, Morse, and Thomas interests had been eliminated from the banking organizations of New York City."
You observe this is not my statement. But, first, I would speak about my informant. If I should give his name it might hurt him. He told me something as a matter of information. If he gives me permission, and you insist upon it, I will tell you his name; but if he does not give his permission you will never get his name from me, no matter what I may suffer. You have the proof here from the clearing-house committee itself of what occurred.
Senator Nelson. The papers show that on that Sunday they had decided to eliminate those men from the banking world?
Mr. Hallock. What I read you is from the New York Times, which is on file in the Library of Congress; and if you are not satisfied with what the Times says, you can read it in the Tribune, the World, the Herald, or any New York papers.
(Copious extracts from New York dailies and the Washington Post will be found at the end of Mr. Hallock's statement.) The Chairman. Go on with your next statement.
Mr. Hallock. You understand, I know these bankers
Senator Nelson (interposing). Go on and tell us what they did.

Minnesota, South Dakota, Nebraska, Missouri, Oklahoma, Kansas, and Colorado.
I have sat here, gentlemen, for two weeks observing your deliberations, and come to the conclusion that you have already agreed among yourselves, as I have observed you, upon all that is essential to give this country relief that they now want in regard to legislation of the character that you are proposing. It will be my object to show you that I have had some experience in the matters I am going to talk about, and that it is perfectly feasible for you gentlemen, inside of one week, to agree upon what you want to do, and that that will be the best result you will ever reach if you take half a year. I have observed you, and you will come to no better conclusion than that. My object is to endeavor to prove that that is the course that should be adopted.
The letter which I addressed to your honorable chairman, asking for a hearing, requested it in order that I might explain, among other things, the real cause of the panic of 1907—
an error of judgment on the part of the New York Clearing House. It was published at the time in the metropolitan press, and throughout the country, but not as the cause. Indeed, when the clearing house committee gave it out, they did not suppose it would be the cause of one. It was not mentioned or intimated in the report of the Pujo committee, and it has been completely lost sight of in the House debates on the pending bank act (H. R. 7837), so far as my observation goes.
Now, gentlemen, I am going to give you a little reference to my ability in the judgment of another person.
Senator Nelson. What was the mistake of the clearing house?

Mr. Hallock. I will explain that. It is a very delicate matter. I want to have it understood and, having the proofs, propose to submit them to you to settle the question beyond doubt, that it was no conspiracy but simply an error of judgment. A very serious one; oh, yes; and one that should be provided against.
An ex-Member of Congress whom you all know, Mr. Charles M. Fowler, of New Jersey, cites me in his recent work, Seventeen Talks on the Banking Question, page 293, as "the highest authority in merely his opinion.
In a word, I wish to explain why he should venture any such assertion. My father, way back in 1852, finding the banks of New York without a clearing house and without ability to agree upon establishing one, suggested to them that they should adopt the London plan. There had been a clearing house in London for three-quarters of a century. They said such a plan might be good enough for London, but not for New York. As they could not agree upon a plan, my father said he would get them up one. He went around for 6 months among the banks to see what they could agree on. Ascertaining this, he submitted a plan which they agreed to. I repeated that operation, myself, in Boston. I brought about the clearing of out-of-town checks in Boston by bringing the banks there to an agreement. Here in this little book I have signatures of 42 Boston banks which were brought together by me.
Now, gentlemen, what I am going to try to do in this hour which you have allowed me is to try to bring you together, if it is possible, and I believe it is. this country upon clearing-house course, that is

Senator Weeks. Just a moment. Do you think we should consider any legislation relating to clearing houses in this bill? Mr. Hallock. No; not definitely; not specifically. Senator Weeks. I did not know but what you were going on to argue in favor of that.
Mr. Hallock. Oh, no; not at all. I will give you definitely all that in my judgment you should consider in regard to this measure to make it one of the greatest bills ever passed in our history. Having observed you, I believe you have already agreed, in substance. All I propose is a synthesis of your ideas, so that you can get together and end the suspense that is now felt throughout this whole country in regard to what you are going to do. My argument will be devoted to the question of reaching a wise conclusion, so that Congress may adjourn and go home.
Senator Nelson. Is not the country in a prosperous condition now?Mr. Hallock. I am glad you asked that question. I came to this city to make a panic less liable than it is to-day. When we come to the question of what the panic of 1907 really was, we shall then better understand the present dangers.
Before the panic of 1907 the Secretary of the Treasury began to distribute money throughout the United States. He gave that order on the 22d of August, 1907. He commenced to distribute some $25,000,000 on the 28th of August and made weekly deposits with banks, principally in the West, South, and Southwest, until the 14th of October. The next week we had a panic.
To-day the Secretary of the Treasury is doing a similar thing. Theoretically he is preparing for some kind of trouble. What was done by Secretary Cortelyou was of no use whatever, and what is being done now is useless so far as preventing a panic is concerned.
There are two fundamental principles in regard to panics. In order to prevent a panic you must act before it starts is the first thing to understand. The second thing is that you can have no panic in this country which does not start in the city of New York. And why? Because this country, in its banking relations, is, as it were, a great network of wires that run down to one wire in New York. If that one wire comes down or the trolley goes off the wire, you have a disturbance that affects the whole country. That is what the panic of 1907 was.
Before the panic of 1907 I knew that one was coming. Permit me to read what I published at the time.
Senator Nelson. When was that published?
Mr. Hallock. That was published on the 28th of January, 1907. I had made up my mind that a panic was coming.
The Chairman. You may give it to the stenographer and not take up the time reading it now.
Mr. Hallock. I would like to read at least a part.
The Chairman. You may read.
Mr. Hallock. It was from reading Secretary Shaw's report for 1906 that I made up my mind the Government was rocking the boat. Upon this theory I proceeded, and certainly was not mistaken. I said in this publication:
According to his report. in midsummer of 1906, "he withdrew from the channels of trade $60,000,000 and locked it up. This was accumulated in part by excessive revenues and in part by deliberate and premeditated withdrawals." He acknowledged elsewhere that would have been a crime under ordinary circumstances. He says "his only excuse for withdrawing the people's money when they (the banks) did not need it and when its presence invited speculation was to have it ready to restore when they did not need it and when its absence would bring certain disaster." The Secretary reports that in 1902 "he restored to the channels of trade somewhat over $57,000,000," and in 1903 "there was restored" $27,000,000. During the calendar year 1906 he increased the public deposits in national banks $94,000,000. This amount had been withdrawn from the "channels of trade" and restored. In September he restored $26,000,000 upon the understanding that it was to be withdrawn about February 1, 1907. Later he restored more on similar terms, so that the question of withdrawing over $30,000,000 is now up.

An interesting inquiry presents itself. Restoration implies previous withdrawals. May not withdrawing the funds have caused the crisis which they were restored to relieve? If business men went to their banks and demanded payment in coin or currency, how long would it take to reach a crisis?
Perhaps I ought to explain what is referred to in this paper. When the Government took money out of the banks it took actual money out of their reserves, which disturbed the basis of their loans and business. When the Government put money into the banks it was done the same way. It was not checked in and out. Hence the withdrawal of $60,000,000 in such a way was a very serious operation.
Shaw withdraws from banks more money than merchants would have to to precipitate a crash. Therefore the presumption is that the Secretary every year brings on a crisis by withdrawing funds from the "channels of trade" and meets it by restoring funds.
President Roosevelt had written him a very complimentary letter saying that he had saved us five times from the effect of an annual crisis. In this publication I called Secretary Shaw the checkless, because he was not checking the public money in and out of the banks, but putting money physically into the banks and taking it out physically.
The Chairman. You mean by that it would affect credits to a larger degree
Mr. Hallock (interposing). Yes; just as they say of J.P. Morgan, that the Government gave him $25,000,000 which he used on the stock exchange. You can not use a single dollar bill or coin on the stock exchange. What he did, and very properly so, was to have that monev put in banks and made the basis for their loans. With that deposit of $25,000,000 the banks could loan $100,000,000, four times the amount. To continue:
Shaw, the checkless, recommends to Congress giving the Secretary $100,000,000 to be deposited with the banks or withdrawn, as he might deem expedient. He would have the whole business of the Nation at his mercy. No mortal should have such power, least of all an official who abhors a check book, and, in drawing money out of a bank, demands coin or bills like a scared depositor in a run on the bank. Shaw would contract thenational bank circulation at pleasure, enable banks to import gold, influence financial conditions throughout the world, and prepare to avert any panic in the United States or Europe. In short, Shaw would create a Treasury colossus, and the unnatural thing he would convert the Secretary into recalls a strange tale.
In 1816 Byron proposed to Shelley and his wife that each of their poetical circle should write a ghost story. And on a dreary night in November Mrs. Shelley thought of the story which made her famous: Frankenstein, a too learned physician, collects from dissecting rooms all the parts of a human being, molds them into a man of gigantic stature, about 8 feet high and proportionately large, and galvanizes into life a hideous, misshapen, uncouth, desperate demon, who, full of resentment for being called into existence, murders by degrees the whole family of his creator, Frankenstein.

Senator Nelson. We are very busy and have got to go upstairs into the Senate Chamber, and can you not give us your views in regard to what you said? Give us your views now, as clearly as you can, without reading what your views were at that time. You expressed those views 8 or 10 years ago.
Mr. Hallock. Senator, I will tell you the trouble with the present situation. You had a banker here from Lawrence, Mass. He told you exactly the situation of his bank and how this measure would affect him.
Senator Nelson. What I would like from you, and you will excuse me, I do not wish to break into the thread of your argument. There is one point about which you can give me a whole lot of light which has always been something of a mystery to me, and that is what was the particular and direct cause of the panic of 1907?
Mr. Hallock. I am going to tell you that in detail, just exactly what it was.
Senator Nelson. Why not tell us now,
Mr. Hallock. I do not like to be hurried over that.
Senator Nelson. My idea is that you should tell us what brought on that panic, from your standpoint. Then you referred to the mistake of the clearing house; tell us just what that mistake was.
Mr. Hallock. I will, sir.
Senator Nelson. You must excuse me for being blunt. 
Mr. Hallock. Certainly, sir.
Senator Nelson. I want information, and I do not think it is necessary for us to go into ancient history. I do not think you need to take the time to give us what you wrote such a long time back. Give us your views now.
Mr. Hallock. I want to show you the exact situation.
Senator Nelson. Can you not show us what brought on the panic of 1907? What was the cause of that panic?
Mr. Hallock. Oh, yes; I can show you that. In my opinion, the measure that was most needed early in 1907 was one to permit the deposit of customs receipts in banks, which had been forbidden by law since 1846. After the agitation that I started Congress passed the act of March 4, 1907, which struck out four words "except receipts from customs " from section 5153, Revised Statutes, and for the first time in 61 years permitted the deposits of customs in banks. What did the Treasury Department then do? It refused to carry out the law fully, applying it only outside of subtreasury cities. In the subtreasury cities eleven-twelfths of the customs revenues were received. The law was thus enforced where only one-twelfth of the customs revenues were collected.
Senator Nelson. Please state what you think brought on the panic. I have been curious on that point all this time.
Mr. Hallock. Senator, I will submit to you the proofs. This is not my opinion merely.
The Chairman. Go ahead and do it now.
Senator Nelson. I made a speech on that subject once, Mr. Chairman; it was a speech in favor of protecting depositors in banks, and I stated my views as to what the immediate needs of the bank were, and I wanted to know whether I was mistaken on that.
The Chairman. I would like Mr. Hallock to state it.

Mr. Hallock. Just give me a moment. Up to the time of the panic
The Chairman. I think we will save time by letting you alone. Mr. Hallock. I will go right ahead; you have very kindly given me the floor.
I heard Mr. Untermyer give his testimony before this committee, but I did not know until he came back the next week what he really had in his mind.
The Chairman. I wish you would confine yourself to the panic of 1907.
Mr. Hallock. Yes, sir; and I want to explain why I happened to know about that.
The Chairman. I do not want you to do that. We are waiting on you and we want you to go ahead.
Mr. Hallock. Then I must put this in, at least, that in March, when I found that the law authorizing the deposit of customs receipts in banks was not carried out in any subtreasury city, I came on to Washington
Senaor Nelson. Hold on. That law was passed after the panic.
The Chairman. No; in March they struck out the four words which Mr. Hallock has referred to.
Mr. Hallock. Yes; and I came on to Washington and stayed in this town 15 months, it the elbow of the Secretary of the Treasury, trying to prevent this panic. The Aldrich-Vreeland bill was passed afterwards, but this was another measure, a short measure, passed on March 4,1907. I came here and want to state why
Senator Nelson (interposing). I think you are right about the date. Now, your opinion is that the Secretary was not complying with the law in depositing part of the Government receipts in the subtreasury instead of the banks?
Mr. Hallock. I do not say that.
Senator Nelson. That was one of the causes.
Mr. Hallock. I do say this that if the Government had deposited those receipts in the New York banks and had checked out the deposits the situation would not have been so tense as it was, and then this mistake that the banks made would not have occurred. That is the real reason why I wanted to explain the situation, so you will understand it before we come to the panic; otherwise it would be like a piece of gossip which I was telling you, and I have no such desire at all.
The Government would not deposit its customs receipts in New York banks. If the collector had deposited his receipts in banks, the importers would have paid in checks, which he would have received, just as collectors received them in the case of internal revenue. That was not done. Therefore the situation in New York was very peculiar. There were very large payments made for imports and banks had to settle in actual cash with the Government, and the Government would lock it up. This disturbing element,you must remember, was introduced through mismanagement of our Treasury Department.
Now I am ready to go on with the panic.
Senator Nelson. I want to say to you that I am interested in legislation in the Senate Chamber, and I am sitting here at the sacri excited about this matter But I want to enter my protest

Mr. Hallock. They are good men, and what I say is not reflecting on them personally. They simply thought they were correcting an evil, and did it in their way. I admit what they did was a criminal act, according to the laws of New York. It was conspiracy against the property rights of Morse,Heinze, and Thomas. These conspiring bankers could have been punished, but the statute of limitations protects them now. The usefulness of this statement is that it dis poses once for all of the accusation against the bankers of my city that they intended to bring on a panic. They did not. They brought it on, but did it through ingnorance, without realizing the effect of what they did. That is the conclusion I want your committee to understand.
The Chairman. Give us the facts, Mr. Hallock.
Mr. Hallock. Now, the New York Times of Sunday said:
As the result of the steps taken by the banks the weekly statement was one of the strongest made at this season of the year, etc.
The addition of $6,000,000 to the surplus, cash increasing and loans decreasing, etc., increased their reserve so that when this panic broke out they were apparently better off than usual at this season. It simply brings us back to that act of elimination as the cause of the panic.
You understand the Mercantile National Bank, of which Heinze was president, and the National Bank of North America were both original members of the clearing house. The Consolidated National was not a member, I believe. How is that, Senator Weeks?
Senator Weeks. I do not remember myself.
Mr. Hallock. At all events, the other two were old respected members of the association. So the clearing-house bankers turned on their own people, but did it, as they thought
The Chairman (interposing). We do not care about conclusions; just give us the facts.
Mr. Hallock. I may call attention to this statement in the report of the Pujo committee:
The panic of 1907 started with the closing of the Knickerbocker Trust Co.. which followed immediately after the announcement of the National Bankof Commerce of New York—the trust company's clearing agent—that it would no longer act as such.
The Chairman. What day of the month was that?
The Chairman. I want to know the day if you know it. 
Mr. Hallock. It was Monday, the 21st, the day following that Sunday. This notice was given by the National Bank of Commerce 
The Chairman (interposing). That was the 21st of October? 
Mr. Hallock. Yes. 
Senator Shafroth. 1907? 
Mr. Hallock. Yes. The trust company attempted to keep its doors open on Tuesday, although it was not to have its checks cleared after that day, and closed them at 12 o'clock after paying out $8,000,000. Thus closed the Knickerbocker Trust Co.
The Chairman. What became of the president of the Knickerbocker Trust Co.—Mr. Charles Barney?
Mr. Hallock. He finally destroyed himself.
The Chairman. Committed suicide? 
Mr. Hallock. I believe so.
This eliminating action of the clearing-house committee brought on the panic by starting a run on banks; not so much a run on their counters as a run by drawing checks for the purpose of transferring funds to banks that the depositors considered safe, which, of course, resulted in a very large amount of checks to pay. For instance, the National Bank of Commerce had a debit balance at the clearing house of $7,000,000 which resulted from this drawing on the institutions that it was clearing for. It was a very critical condition for a clearing bank to be in.
Now, the New York Sun on October 21 had these headlines over its story of what had happened at the clearing house on Sunday: "Finds its banks are solvent—Any clearing-house bank that may need cash will get it now." This suggested that the trust companies would not get it; and a number of overprudent people did draw their funds from the trust companies.
The Chairman. Did not this meeting on Sunday declare the banks solvent that had been run by Morse and Heinze?
Mr. Hallock. Oh, yes.
The Chairman. They declared those banks solvent, did they not, and gave it out to the press?
Mr. Hallock. That is, solvent so far as paying depositors was concerned. They admitted earlier that there was some impairment of capital and surplus, but from the public's standpoint, the protection of depositors, they were solvent.
Senator Nelson. And still they refused to clear for them the next day?
Mr. Hallock. But, you see, this announcement in the Sun and other dailies started everybody that had an account in the Knickerbocker Trust Co. to draw on it, and those checks had to be cleared by the National Bank of Commerce, so there was no telling how many millions the National Bank of Commerce would have had to pay if they had not refused to clear. From the ordinary standpoint they were justified in acting so, but the point I am making here is that the panic did not start with the closing of the Knickerbocker, but the Knickerbocker's closing was a result of the action on Sunday, and that action was not intended to bring on the panic in any way, but was an error of judgment.
I need not say much more except this: On that Sunday there was a syndicated article, a written interview with Mr. Rockefeller, printed in the New York Times
The Chairman (interposing). John D. Rockefeller?
Mr. Hallock. Yes; printed in the New York Times with this title spread across the page, "Rockefeller sees no portent of disaster." That same article was printed in the Washington Post under the title "Time for patience." In other words, our greatest expert in acquiring wealth saw no portent of disaster. I knew a panic was coming as early as January, 1907; came to this city in March, 1907, and remained here 15 months trying to stop it .
Senator Nelson. Tell us what other causes directly led to that panic.
Mr. Hallock. I have told you the whole story.

The Chairman. Is it not a fact, Mr. Hallock, that beginning in January there were important constrictions of credit in New York and that the interest rate went through a violent fluctuation, up as high as 40, 50, and 60 per cent?
Mr. Hallock. There were. And in March there were occurrences that made a number of prudent bankers put their houses in order.
The Chairman. Was there not a general sentiment throughout that section that there was danger of constriction at hand?
Mr. Hallock. There was no feeling of apprehension in New York that we were going to have a panic. The panic was as unexpected and unnecessary as the shooting of McKinley.
The Chairman. Was there not an important reduction of loans, as much as $50,000,000 on the loan side, during those months, from month to month, between January and July?
Mr. Hallock. I did not go into that at all. But let me tell you
Senator Weeks. Have you any information?
The Chairman (interposing). I will put in the record a table of those fluctuations of interest, and also of loans.
Mr. Hallock. Let me show you the way I look at it. Take the Brooklyn Bridge. It will carry a great load of passengers, but if you should put the whole load on one hanging section of the bridge it would buckle. You must keep the load moving. Whether a few pass over the bridge or a crowd makes no difference.
So it is with New York. New York can stand anything that happens unless the trolley goes off the wire or the wire comes down. That is what happened at New York in 1907. You may have the same thing over again if you press this bill in the form proposed. Mr. Untermyer, the other day
Senator Nelson (interposing). Now, here, I want to bring you to another point. I want you to tell us what you know about how Mr. Morgan saved the country by laying the foundation for the consolidation of the Tennessee Iron & Coal Co. with the Steel Trust?
Mr. Hallock. He did not save it at all. Look at it this way
Senator Nelson (interposing). How was that brought about? Was not that on Sunday?
Mr. Hallock. They do many things on Sunday in New York. But you must look upon prosperity as a beautiful vase
Senator Nelson (interposing). Now, don't go into poetry; give us the facts.
Mr. Hallock. But this is so pretty
Senator Nelson (interposing). Give us the cold lead. Mr. Hallock. Senator, let me drop this vase. While you have it whole, you know, it is all right. If you drop it, it breaks. When Mr. Morgan came in the thing had broken. I am trying to call attention to the necessity of preserving prosperity and preventing these accidents.
I would not say a thing against my own people; would not soil my own nest. A New Yorker born and bred, I am proud of my city, the greatest port on the face of the earth
The Chairman (interposing). Let me call your attention to the fact that ought always to be remembered in these discussions when you talk of New York, that New York contains everything that is good and everything that is bad in human nature. Proceed.

Mr. Hallock. We are well supplied in every particular. I have nothing to say about the Morgan matter.
Senator Crawford. Don't you think these panics come on at a time when they ought to loosen up and use these reserves; but. instead, they turn around and each fellow goes to hugging his reserve and cutting down on loans, and, of course, the result is stringency and panic?
Mr. Hallock. Nothing of that kind, in my estimation.
Senator Nelson. I want to bring you to this clearing-house matter.
Mr. Hallock. I will bring it to you
Senator Nelson (interposing). I want to put you on the track of one thing. Was not one mistake the clearing house made in 1907 in not pursuing the course that the New York Clearing House had taken in the panic of 1873
Mr. Hallock (interposing). What was that? I tried to stop that panic myself.
Senator Nelson. I thought you were an expert on clearings. Mr. Hallock. They hadthe panic, didn't they? I believe in preventing panics, and every great panic we have had since 1837 might have been prevented had the clearing-house management followed the advice of my father
The Chairman (interposing). What was that advice? Mr. Hallock. Why, in the panic of 1857, you know, they had no currency, Government currency, but only State bills of different kinds. In Massachusetts they had the Suffolk Bank system, by which an excellent currency circulated throughout the six States of New England. In New York we had a fair arrangement, not by cooperation of banks, as it was in Boston, but through the action of individual banks. So we had a great deal of currency, but much of it was stuff you could not handle at all without loss.
So the city banks had no medium of settlement except gold. When this panic of 1857 occurred there was such a demand on the little gold in their vaults that the banks had no means of providing for payments among themselves, settling their balances. Finally they adopted this device: Settlement in their own bills, which were made up in bundles of, say, $5,000, and those bundles were passed back and forth from bank to bank at the clearing house. It was the only means they could think of.
The Chairman. What was your father's advice? Mr. Hallock. His advice was that the clearing house should rediscount for members. They afterwards did this, but also issued clearing-house certificates, which makes a complex operation of it. The Chairman. We understand the clearing-house certificate. Mr. Hallock. I am afraid the committee do not. The Chairman. What was your father's advice? We want to get back to your father's advice, by following which panics could be prevented.
Mr. Hallock. The first element is rediscount. 
The Chairman. That is what he advised?
Mr. Hallock. That is part of it; not in those terms. The idea was that a bank that had securities could bring them up to the clearing house and get credit for the amount agreed upon. That is rediscount.
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The Chairman. That is the very basis of this proposal now, is it not?
Mr. Hallock. Yes; but you introduce an element that I am trying now, in my explanation, to keep out.
The Chairman. What is that element you think ought to be kept out?
Mr. Hallock. That the discount must necessarily be paid in notes. Witness after witness has shown you that banks do not require notes upon receiving a rediscount. Take, for instance, the great Baring operation, where the Bank of England agreed to take over securities and grant a rediscount of £11,000,000.
Senator Crawford. What do you want? To give them credits?
Mr. Hallock. Yes.
Senator Crawford. And treat that just as the Bank of England does? Call that gold?
Mr. Hallock. Yes. That, in general, was what my father suggested.
But, as I said, I have definite propositions that I want to make to this committee, so that this committee may agree inside of a week on a measure that will meet with the approval of the whole United States.
The Chairman. Go ahead; state your proposition now; we are ready for it.
Mr. Hallock. You know I am inexperienced in public speaking, and my plan has been broken up a little. I want to introduce one or two facts.
The Chairman. We want your propositions now. You want to tell us how to fix this bill.
Mr. Hallock. Yes, sir; but I want to give you an idea of the significance of what I am going to say.
The Chairman. We will determine the significance of it after you say it.
Mr. Hallock. Well, now, gentlemen, that was done before, and I do not know whether you were satisfied with my statement of the panic or not. I would have stated it a little differently.
The Chairman. You have stated it clearly.
Mr. Hallock. If you are satisfied, I am, and we will let that go. I will bring it to a conclusion in a moment.
The cashier of the bank at Lawrence, Mass., gave you some very valuable information. He told you how, during the panic of 1907, he had no trouble in obtaining all the currency he needed for his pay rolls, and that he obtained that currency from his correspondent in Boston. He also told you he did not know where the Boston banks got that money. Now, that is a thing I want to explain, so that the committee can understand it.
Why was it that in Boston the banks had no trouble in supplying all the banks of New England with all the currency they needed? As Senator Weeks brought out from him, the witness did not know of any bank in New England that did not have all the currency it needed during that panic for the transaction of its business.
I want to base something upon that fact and will tell you where that money came from. Remember currency is only needed in banking for certain purposes. For other purposes it is a nuisance, an expense, and banks do not want it. They would like to throw it out of the bank and put the amount into other forms. It bears no interest, you know, and has other disadvantages.

My father, as I told you, in 1853 brought about the agreement among the New York bankers to adopt a plan of clearing city checks. In 1854 the bankclerks brought to our house the silver pitcher, of which this is a picture. [Exhibiting it.] I witnessed their presentation of this pitcher to my father, and there my knowledge of the clearing house began. These clerks declared my father the originator of the clearing house in America. It began operations in 1853, and this pitcher was given in 1854, after my father had been assistant manager of the New York clearing house.
Senator Nelson. Now, come to the bill, or I shall have to leave you.
Mr. Hallock. Just let me finish this. I brought about in 1898 and 1899 the clearing of out-of-town checks in New England. Senator Crawford. Tell us where that money came from. Mr. Hallock. I am going to.
Senator Crawford. It takes you too long to get to it. We do not care for pictures and that kind of thing. Tell us where that money came from.
Mr. Hallock. It was because the New England banks had a means of clearing their out-of-town checks through Boston; that is, they could do with checks all the business that could be done with checks. Therefore they did not have any unusual need for currency, and they had too much sense to lock it up in their vaults. They kept on hand the amount needed, and the New England bankers outside of Boston shipped their excess currency to Boston, so there was always a supply on every hand.
The Chairman. Then the point is, Mr. Hallock, that the clearing of these checks through Boston in this convenient way resulted in a less strain upon the currency?
Mr. Hallock. That is it.
The Chairman. That is what you want us to understand? 
Mr. Hallock. Yes, sir.
The Chairman. Then, would not the clearing of these checks through the new reserve banks at par have a like effect?
Mr. Hallock. Oh, but now you are taking up another subject. That would be an admirable system, and the New England banks, a great many of them, would like to have that kind of a system. But you have heard here that other banks, in Mississippi and other States, do not want to have anything of that kind.
The Chairman. Oh, yes; I think we heard something of that kind. I am asking your opinion.
Mr. Hallock. That is true, sir.
The Chairman. What is your opinion about it?
Mr. Hallock. It is a digression, but I will give it to you. Such collections by the reserve bank would bring about a state of things which, so far as the discussion has proceeded in my presence during the last two weeks, is not considered at all by this committee; and, so far as I know, it is not considered anywhere, except that I presented it
The Chairman (interposing). Do you favor it or not, and if you do not favor it tell us why you do not.
Mr. Hallock. Put it that way then. It was suggested to forbid the central bank handling checks. You know that is one of the suggestions or amendments.
The Chairman. I am asking your opinion as to whether it is a good thing or a bad thing, and your reasons for thinking so.
Mr. Hallock. I am giving you my reason. It is this, that even if you forbid the reserve bank to receive these checks on deposit the members of thatbank will put them into the bank in spite of all you can do.
The Chairman. That is a good suggestion. I think that is so, too.
Mr. Hallock. I know it is so, and it is going to have this effect: It is going to increase the credits in those reserve banks to a degree you have no conception of at all.
The Chairman. Why? Tell us about that.
Mr. Hallock. Why? Well, I may have to give you a few facts.
The Chairman. Give us the facts.
Mr. Hallock. In England, where they clear out-of-town checks in London, they do not collect those checks as cash. They take them merely as collection items. After the checks are paid by the country bank to which they are sent by its clearing agent in London and the agent has received from the country bank a letter of advice to debit it with that amount, less certain checks which have not been paid but sent across the country, back to the banks that sent them to London originally; then, and not till then, the checks are paid through the London clearing house.
We do the business different. A Boston bank will take a piece of paper on San Francisco, with a face value of $10,000, as a deposit of $10,000, and then get the money for it after days and days. And so it is all over the country.
The Chairman. And they list that among their current exchanges, do they not?
Mr. Hallock. Absolutely, as a deposit.
The Chairman. And then they know it is a credit on the exchange?
Mr. Hallock. Yes; and they send it out for collection. That is the method of doing business in this country. According to your bill that same method will be followed in the case of the new reserve bank. And let me tell you this about the proposed bank: You think you are going to establish 12 banks, but you are not
The Chairman (interposing). We are not?
Mr. Hallock. No, sir; you are not. You are going to establish one bank. It does not matter what you call it; it is one bank. I know what I am talking about. All you can establish is one bank, divide it up as much as you please. So I will call it one for the sake of illustration, because we are talking, in a general way, more or less poetically. [Laughter.] Let us assume that 25,000 banks become members of that central bank. Now, can any of you conceive of a better method of collecting checks on the myriads of members than by turning those checks in for credit to the bank or its branches? Why, it would be impossible to find anything better than that.
But suppose that the reserve bank credits those out-of-town checks as deposits. So far as the checks are payable in the region where deposited they will balance one another very quickly. That is admirable so far as the local arrangement is concerned, but those checks that are payable in other regions will have to be handled through other regional banks or branches in some way. Therefore there will be lapses of time when these credits will be carried on the books and accumulate as real deposits of money. The result is that the deposits in that central bank will surprise you by their size. You have no conception of that.

And, if you will permit me, there is another point I should like to speak of, which has been presented in a way at variance with the facts, as you will see when you come to examine them later and ascertain just what they are. It has been stated that if a country bank deposits 5 per cent of its net deposits in the bank as a reserve it can borrow back two-thirds of that money. There is a misapprehension here. Let us put it this way: Suppose abank wants a rediscount from that central bank. All it has to do is to obtain, if its net deposits are $100,000, $5,000 to deposit in that bank. Suppose it gets from its correspondent or takes from its own vaults $5,000 in gold certificates. It deposits that with the central bank. Now, the central bank can rediscount to an amount of more than two-thirds of that; they can rediscount to the extent of three times that. Instead of returning two-thirds of $5,000—or make it $6,000, two-thirds of which would be $4,000—instead of that it can rediscount $18,000. So, I tell vou, this is a big plan you are pressing for adoption; you have no idea how big it is.
Senator Crawford. Do you call that dangerous?Mr. Hallock. Many people talk about inflation. One of the biggest inflations in this country is in our population.
Senator Crawford. Then you do not consider this a vice in the bill?
Mr. Hallock. I do not. But I want you to realize what you are building up. According to banking methods it will take a form that you have very little idea of at present. And, by the way, I will illustrate that
The Chairman (interposing). You spoke of a deposit of $5,000 affording a basis of credit of a much larger amount. How do you figure that out?
Mr. Hallock. Because a reserve—for instance, a reserve of onethird—allows you to issue three times that amount. That is the whole principle.
Senator Crawford. How do you make that out?
Mr. Hallock. That is the fact.
The Chairman. You can issue notes?
Mr. Hallock. Any form of discount you want. You understand some of the bankers told you they did not need notes very much; they wanted rediscounts but not notes.
The Chairman. Your explanation is that it is a fact, and that ends it. It may be a fact, but if you know any reason why it is a fact I would like to have you give it.
Mr. Hallock. I can give it to you. In New York the reserve is 25 per cent. Now, that pays
The Chairman (interposing). In other words, they can lend threefourths of that sum and then deposit that three-fourths and lend out three-fourths of three-fourths, and then lend out three-fourths of the remainder
Mr. Hallock (interposing). I can not follow that.
The Chairman. That is a correct diagnosis of it.

Senator Crawford. Mr. Forgan said that under the present system $1 actual assets at the foundation was the basis for the expansion of $8 in credit.
Mr. Hallock. Taking the average
The Chairman (interposing). And that is substantially true, but it involves only the capital. Mr. Hallock. That, in general, is so.
The Chairman. The statement I made is the correct reason why that would be true in the New York banks. If they deposited $100,000 in gold, thebank being required to keep 25 per cent of that, would be able to lend out $75,000 of that money
Mr. Hallock (interposing). Oh, no; $100,000.
The Chairman. I am speaking of the deposit.
Mr. Hallock. They do not lend out that money necessarily.
The Chairman. Just hold on a minute. I will state this matter correctly. A deposit is made of $100,000 in gold. Against that $100,000 in gold the bankis obliged to retain $25,000 as a reserve. That is true, is it not?
Mr. Hallock. So far as that is stated in that particular way.
The Chairman. Then the $75,000 in gold that is loaned out to Tom, Dick, and Harry on their notes flows right back into the banks as gold or is redeposited as gold; and of that $75,000 which flows back into the bank as gold the bank may lend three-fourths of $75,000, retaining one-fourth in gold against that $75,000. And so, by a series of loans and deposits and loans and deposits it finally figures down that you can lend three or four times as much as the original deposit of gold. Therefore it results in a credit expansion of three or four times the amount of the original deposit in gold.
You are applying that same argument to the regional reserve bank, but it is a very different question with the regional reserve bank, because when this gold is withdrawn from the regional reserve bank, if it is withdrawn, it will then go into some country district where it will not quickly flow back into the regional reserve bank. And I doubt whether the argument would apply with equal force as it does apply in New York where the loans are made in large measure in the city itself, which results in their immediately flowing back into the channels of the bank's deposits.
That is the reason why I asked you for your reason. I wanted to see what your reason was, and you replied it was a fact. I wanted to get your reason for its being a fact, and therefore I broke in upon you to explain what the system was in central reserve cities.
Mr. Hallock. But, Senator, you assume that the rediscount would be paid in gold in that case.
The Chairman. Yes. You think it may not be?
Mr. Hallock. I know. Only in exceptional cases will the gold be used at all. It will be used just as you provide in the bill
The Chairman (interposing). You think they simply take a credit at the bank?
Mr. Hallock. Of course, just as it was in the case of the Baring failure, in London, to the extent of £11,000,000. They do not want the gold; it is expensive to handle
The Chairman (interposing). Then they make deposits, do thev not?
Mr. Hallock. To an extent you can not conceive of.

The Chairman. They will deposit this credit immediately to their own credit with this bank. They have a credit to their account. Then they have to keep one-third against that credit
Mr. Hallock (interposing). That is better than gold, sir.
The Chairman. That may be, but that is not in point. The result is that the bank can do the very thing which I have described as taking place in New York by retaining one-third and lending it out again.
Mr. Hallock. Oh; yes, sir.
The Chairman. All right. Now, the reason has been given? 
Mr. Hallock. Oh, yes.
Now, I want to explain one thing. In the earlier part of my remarks I spoke of—at least, I started to
The Chairman (interposing). You were going to tell us something about this bill. There was some defect you wanted to point out to us; and I should like for you to do it, because this bill is here subject to bombardment, and if you can punch a hole in it, I should be glad for you to do it at once.
Mr. Hallock. I do not want to punch a hole in it.
The Chairman. I am using that as a figure of speech. I speak of it as a battleship undergoing the assaults of an enemy, and we are trying to find the weak spots in it and to correct them if we can.
Mr. Hallock. I have not stated all the points I wanted to bring you to the conception of the possibility of an agreement inside of a week upon a measure that will satisfy the whole country.
The Chairman. What is that measure?
Mr. Hallock. That is what I am coming to.
The Chairman. Give it.
Mr. Hallock. As I say, it is a synthesis of those things you have already agreed to at this table. The Chairman. What are they?
Mr. Hallock. Of course, in selecting such points I must leave out those things in which you disagree. You must understand that. Therefore the number is comparatively small, but of great importance.
The Chairman. All right; give them. Mr. Hallock. And I showed you that my father and myself have done the same thing in bringing the banks together
The Chairman (interposing). Give us these points, Mr. Hallock. Mr. Hallock. Yes; I will give them to you, but I want you to understand the importance of them. You may think it is such a little bit of a thing that it is not enough.
The Chairman. I wish you would give us these points; otherwise you may not have an opportunity to do it, because this committee is likely to adjourn and leave you without an opportunity to say what you have to say.
Mr. Hallock. The first thing you are practically agreed upon is to protect the 2 per cent bonds. You propose in the bill something that I never supposed a Democratic Party would agree to. Understand, I have studied these things all my life. I never supposed thaf the Democracy
The Chairman (interposing). Oh, confine yourself to the point, Mr. Hallock, if you please.

Mr. Hallock. But it is proposed in this bill to substitute a 3 per cent bond for a 2 per cent bond. The Chairman. Yes.
Mr. Hallock. Banks hold 2 per cent bonds, and you propose to give them a 3 per cent bond—to pay extra. The bankers will laugh at you if you do it. Of course they will. The idea, when you have got bonds out at 2 per cent, that you are going to give them bonds at 3 per cent. That is something they do not expect you to do if you look after the interests of other people.
The Chairman. Do you think that is right or not?
Mr. Hallock. I think it is wrong.
The Chairman. I am glad to hear you say so.
Mr. Hallock. Absolutely wrong. And let us be just to the bankers; I have nothing against them. The reason bankers want to have 3 per cent bonds put in place of 2s—and one banker suggested 3£ per cent—is to have a bond that will stay at par or above.
The Chairman. You said we were agreed upon a certain proposition.
Mr. Hallock. Yes; you have. I am coming to it.
The Chairman. I wish you would. I am very anxious to get it.
Mr. Hallock. I am showing you that it is foolish when you have a 2 per cent bond to give the man that holds it a 3 per cent bond. The Chairman.You say we have agreed upon the wrong thing, then?
Mr. Hallock. In the bill, not at the table.
The Chairman. What have we agreed upon at the table?
Mr. Hallock. You have agreed to this, that the 2 per cents should be kept at par. It is in your own bill. What I am proposing is that you carry out the Owen bill with very slight modifications, and the Shafroth bill as to the other matter
The Chairman (interposing). You think the committee has expressed an opinion that would be favorable to that adjustment, rather than the 3 per cent?
Mr. Hallock. Absolutely, you have—I do not mean every one of you.
The Chairman. I have great confidence that Senator Shafroth will come around to that opinion after a while. Mr. Hallock. That is my first point. The Owen bill (S. 2898) says:
The Secretary of the Treasury is further authorized in his discretion, when requested to do so by national banks having outstanding national-banknotes, secured by 2 per cent bonds, to purchase such bonds at par and accrued interest, and to assume the redemption at par of the bank notes secured by such bonds, charging the amount of such notes against the proceeds of such 2 per cent bonds and paying the balance in cash to suchnational bank. * * • When such national-bank notes, the redemption of which has been thus assumed, shall come into the Treasury of the United States, they shall be canceled and retired, and in lieu of such notes so canceled and retired the Secretary of the Treasury shall issue Treasury notes of the same amount.
Now, that measure, if it was carried out, would, of course, keep the twos at par. It would satisfy people that are now in great distress of mind to know what is to be the fate of those bonds, and if they are not obliged to turn them in, of course they will keep them. If they are obliged to turn them in they will get par.
The Chairman. You think that is all right?
Mr. Hallock. Absolutely. Look here, you are sensible men; is there any question about it?
The Chairman. That is what you think the committee can agree upon?
Mr. Hallock. You have agreed upon it, in my opinion. I have been present and I have watched you. There is no reason to stay here six months to settle that question. You can settle that in one week.
The Chairman. What is the next question you think the committee can agree upon?
Mr. Hallock. I have not finished with that. I like to put improvements upon things a little. If in addition to that you will simply repeal that provision of the national-bank act in section 5167, which says:
Whenever the market or cash value of any bonds thus deposited with the Treasurer is reduced below the amount of the circulation issued for the same, the comptroller may demand and receive the amount of such depreciation in other United States bonds at cash value, or in money, from the association, to be deposited with the Treasurer as long as such depreciation continues.
Now, if you will simply supplement that measure with the repeal of that section, so that any bank that has 2 per cent bonds will not be subject to a call from the comptroller to put up more bonds, the relief will be complete.
The Chairman. I think you are quite right about that.
Mr. Hallock. If you will do that, it will be a perfect measure to keep the twos at par. You will have the thanks of the whole American people. I try to think I am speaking for the whole American people. And, by the way, about the American people
The Chairman (interposing). Oh, no; now, we don't want to hear about the American people. [Laughter.]
Mr. Hallock. That is my very complaint. My complaint is that in the Glass bill you refuse to take the bare hand of the people. You trust your Federal reserve banks only to take the gloved hand of the banker.
The Chairman. You think the bank, then, ought to deal directly with the citizen?
Mr. Hallock. I am only speaking about your own bill; that is the point now.
The Chairman. I am asking you to tell us how to remedy this bill. You tell us we do not take hold of the bare hand of the people, and I am asking you if you think we ought to deal with the citizen directly.
Mr. Hallock. Do you?
The Chairman. Do you think so?
Mr. Hallock. His own funds are put into the bank.
The Chairman. What do you think ought to go into the bill? That is the question. Do you think the bank ought to deal directly with the public?
Mr. Hallock, Of course, in a reasonable kind of way. The Bank of England does it, the Bank of France does it, the Reichsbank does it.
The Chairman. So they do, all of them.
Senator Crawford. You would amend this bill so that the reserve banks could do this with the public? Mr. Hallock. Don't put it that way.

Senator Crawford. Would you not amend
Mr. Hallock. I am going to ask you to agree upon some simple measures, and that question I do not have to answer and do not want to, because it is out of my way.
The Chairman. All right; we will not compel you to answer a question which is so complicated.
Mr. Hallock. I simply want to tell you what has substantially been agreed upon by this committee.
Senator Crawford. What have you on this point?
Senator Mclean. Mr. Chairman, I think he should give us his suggestions.
Mr. Hallock. What did you say?
Mr. Mclean. I was hoping you would give us some continuity of your views of what you feel should be the changes in this bill, or else supplement it with your ideas.
Mr. Hallock. I have given one important provision. There are two or three more.
The Chairman. Let us have them, because I will be obliged to leave you at 3 o'clock, and you have just 25 minutes more.
Senator Mclean. You have gotten through with the bonds. What is the next point?
Mr. Hallock. The next point is this, and understand these suggestions were learned at your table. Here is a suggestion that you should issue currency on a 50 per cent gold reserve. Why not have a simple process, which is perfectly practicable, to take the gold certificates the moment the Government gets possession of them, and in that way obtains the ownership of the gold that is behind them, and to issue Treasury notes when necessary to pay, for instance, for the national-bank notes outstanding against these 2 per cent bonds when they are redeemed, for you become responsible for the currency, of course. You have got to pay for it in some way.
The Chairman. You mean to cancel the gold certificates and put the gold in the redemption division—to put the gold against it?
Mr. Hallock. Yes; to the extent of $2 to $1.
Senator Mclean. We have discussed that, and you approve, as I understand?Mr. Hallock. Yes; that is that point.
The Chairman. You approve of that. What is the next point?
Mr. Hallock. The only other point is that you shall permit the bankers, under proper directions, to establish their clearing houses so as to get the support of the clearing house as a guarantor of the proceedings with the Government when they want rediscounts, in order simply to hand out their paper and take over credit, if that is all they require, or, if they want actual currency, to have the Government issue it in the form of gold notes. There you have all that you need for the solution of the present question.
Senator Crawford. Then you simply want to have them take currency or to take a book credit?
Mr. Hallock. At their pleasure.
Senator Crawford. At their pleasure?
Mr. Hallock. Yes.
Senator Crawford. While this requires them to take currency, you want them to
Mr. Hallock. Oh, no; it don't require them to take currency. 
Senator Crawford (continuing). Just allow credit? 
Mr. Hallock. It don't matter. It can be either way as the banks choose. 
Senator Shafroth. It can leave it as a deposit, if it wants to? 
Mr. Hallock. Certainly; it permits that.
Senator Crawford. You want to disagree with the bill in that respect?
Mr. Hallock. I don't think it is necessary just now to establish banks.
The Chairman. You do not think it is necessary to establish banks?
Mr. Hallock. As an agent of the Government.
The Chairman. You do not want any reserve banks?
Mr. Hallock. Well, that is a detail.
The Chairman. Are you in favor of it or against it?
Mr. Hallock. That is for you to settle one way or the other. It is a detail. I do not care.
Senator Crawford. It is in the bill. Would you strike it out?
Mr. Hallock. Not strike it out in the sense of abandoning it altogether. What I ask you is to agree on these few things and to pass that measure and go home and take a vacation, which I think you all need, and then if you want to take up the evolution of a great banking scheme, you ought to devote months to do that.
Senator Mclean. What is your next point?
Mr. Hallock. I am through, with this exception—there is only one thing left, and that is this: Gov. Shafroth s proposition would make a large increase in the legal tender paper money of this country. Now, that is something
Senator Shafroth (interposing). You mean to take up the national-bank notes by it. That is the only increase.
Mr. Hallock. Yes. That, you know—I do not know whether you propose the rediscounting feature or not, but, of course, you would not object to that.
Senator Shafroth. I have not proposed the rediscounting feature.
Mr. Hallock. No; but the proposition is to increase the legaltender issue. Now, on that, of course, this committee is not agreed; therefore I drop that and select something else. I then propose to take from your bill this feature that you have here—that notes shall be made receivable for all taxes, customs, and for other public dues. You can all agree to that, every one of you, and then you have no increase of the legal-tender paper money.
Senator Crawford. That virtually makes them legal-tender paper.
Mr. Hallock. It makes them virtually legal tender, true. But as far as increasing legal-tender paper money is concerned, you can not agree, and I certainly would not agree to it, either. That the notes should be made legal tender is absolutely unnecessary. There are very few uses for a legal tender. Occasionally a lawyer has a contract in which he has to make a tender of money. He then has to be careful under such a contract to tender actual legal-tender money in some form. He then may use gold coin, silver dollars, or legaltender notes. I am speaking practically. For this only real use of legal tenders you may leave the present issue of United States notes at $346,000,000, as it is, and then you have the gold or the silver dollars, which will supply the people with all the circulation required for actual tenders of lawful money.

Senator Shafroth. What objection is there to making currency a legal tender?
Mr. Hallock. Well, sir, you have the objection of the great masses of the people in New York and about there. As a rule, a great many there are opposed to it.
The Chairman. Have not they got some mental obsession on that question?
Mr. Hallock. I personally concede the propriety of issuing Government paper money, but can not agree with Gov. Shafroth that it
Senator Crawford. Even then it is not money; it is currency; it is not money. Mr. Hallock. Put it that way, if you like. These are all the propositions that I have to make, and, put together, they would enable you to frame a measure that the whole country would approve.
The Chairman. If that is all you have, and the committee have no questions to ask, we will adjourn at this time.
Mr. Hallock. In conclusion permit me to add that, though it may not be generally known or acknowledged, the establishment of a central bank in the United States under Government control is an accomplished fact. No new law is required to have one. It already operates under provisions of existing law as construed by the Treasury Department. Under the present administration, during this first session of the Sixty-third Congress, this Government bank has for the first time rediscounted commercial paper for banks. The authority of law for doing so in the manner adopted is not disputed.
The Treasury Department, directed by the Secretary of the Treasury, is our Government bank. That some of the banking powers exercised by it are strictly according to law is unquestioned; for instance, the issue of circulating notes (gold certificates) upon deposits of gold, the issue of certain circulating notes in an emergency upon deposits of commercial paper and other securities (act of May 30. 1908), the redemption of United States notes in gold coin and the maintenance of a gold reserve for this purpose.
The five points of financial legislation suggested by me for enactment without delay at this special session conform closely to the authorized practice of the Treasury Department:
(1) The issue of $10 in gold certificates upon any $5 of gold (129 grains of standard gold) that are in or come into the ownership of the United States would provide a 50 per cent reserve in gold against such certificates, all of which certificates would be redeemable on demand in gold at par dollar for dollar.
(2) Such issues of gold certificates on a 50 per cent reserve would obviously make practicable the purchase or redemption of the 2 per cent bonds at their face value by the Government whenever requested by national banks that had national-bank notes outstanding and secured bv such bonds.
(3) The market price of these 2 per cent bonds would probably go to and stay at par if Congress withdrew from the Comptroller of the Currency his discretionary power to require additional deposits of bonds or lawful money in case the market value of the 2 per cents fell below the par value of the circulating notes for which they were deposited as security.

(4) The issue of gold certificates on a 50 per cent reserve would enable the Secretary of the Treasury, if duly authorized bylaw as proposed, to meet an emergency by making rediscounts to national currency associations or banks upon commercial paper and other securities and by paying the credits given in issues of such gold certificates, if desired, or by furnishing exchange upon almost any point in the United States, if that were preferred.
(5) The present gold certificates, silver certificates, and nationalbank notes are not a legal tender in payment of private debts; and the new form of gold certificates proposed should not be a legal tender, though receivable for all taxes, customs, and other public dues.

It is only fair that, having criticized the conduct of the clearinghouse committee in 1907, I should indicate what, in my judgment, the New York Clearing House should have done to prevent the panic of that year. Fourteen months before the panic I published in Moody's Magazine for August, 1906, an article entitled, " Thoughts on Clearing Houses," and there laid down this rule of prevention which, if followed, would with mathematical certainty have entirely averted the panic of 1907, to wit:

To show how unity of action saves and disunity destroys, take as a concrete example what was done in 1893, when the National Bank of Deposit applied to the New York Clearing House for assistance. Help was refused. The bank failed. The receiver appointed June 9, 1893, finally closed its affairs June 15, 1894, after paying depositors 100 cents on the dollar with interest. In that year the clearing house helped many of its members by rediscounting bills receivable and securities for them and giving them clearing-house loan certificates in payment. The clearing house could have safely rediscounted the bills receivable and securities of the National Bank of Deposit, or taken over its assets and. guaranteeing its deposits, placed them in another New York bank without depriving depositors or correspondents of their use for a single day. In 1893 every bank or business man that failed with more good assets than debts could have been saved by banks through clearing houses. With such banks and dealers preserved from failure, there could have been no panic.
Six months after the panic of 1907, being in Washington while Congress was contemplating legislation to prevent the recurrence of such an evil, I endeavored to devise a plan by which Congress could compel the New York banks to act toward one another in such a considerate manner that no panic would ever result. My proposal was published in the newspapers of Washington, D. C., and is fully set forth in the folowing articles:
[From the Washington Herald of Apr. 26, 1908.]
J. C. Hai.lock Would Prevent Financial AssassinationBfcknt Troubles AvoidableSuggests Legislation To Compel Banks Of Central Reserve Cities To Accept Checks On Other Banks Of Same Municipality, Even If In Financial Difficulties At The Time.
James C. Hallock. of Brooklyn, N. Y., whose father originated the clearing house in America, and who has himself studied the subject of clearing houses for many years, said yesterday in an interview with a representative of The Washington Herald:
"Thirty-two thousand depositors in Brooklyn, probably 100,000 in Greater New York, had accounts in failed banks last winter. "Millions of citizens throughout the Union have come to distrust Wall Street as a stewpot of panics, which boils over unexpectedly. The American people would rejoice to see Congress enact a law which would protect the country against financial disturbance from that quarter.

"Possibly a few men in New York would scream as if they were to be killed. But even in battle many more than are killed think they are going to be. However, it is true, I wish our Representatives would rise as one man and render harmless some New York bankers, who could be crushed as easily as a spider.
"Understand that the principal banks in the city belong to ;i union; yet they let one of their number suspend and deserted five, forcing four to fail, so that for months there have been closed banks on whose dusty windows the passing throng have been reading a shameless advertisement of desertion in the soiled letters. 'Member of the New York Clearing House.'
"Can not even its members be trusted? Now, though these broken banks suffered losses which their shareholders have had to bear, every one of the six will resume or pay depositors in full.
"Their funds would have far exceeded their liabilities to depositors, if a little time had been allowed them to realize on their assets.

"Banking in New York is conducted much more safely than people suppose. Not since the Marine National Bank failed, in 1884, with a net loss to depositors of $765,800, has a dollar been lost by depositors of failed national banks in the city of New York. The only other net loss that ever occurred was $25,012 by the failure of the Croton National Bank, in 1867; that is to say, less than $800,000 in 45 years of national banking, an average of less than $18,000 a year, with no net loss at all for the past 24 years.
"St. Louis has had only one net loss from the failure of a national bank. $38,428, in 1887, an annual average of less than $860, with no net loss at all for over 20 years. Chicago has had four small net losses, aggregating $462,453, since 1875, an average of only $14,000 annually for the past 30 years, with no net loss since 1893.
"In short, the national banks of New York are so absolutely safe that they could guarantee each other's deposits without practically any risk. When the runs occurred on the Mercantile National Bank, First National Bank of Brooklyn, National Bank of North America, and New AmsterdamNational Bank all the other national banks in the city could without peril have offered to receive checks on them for deposit .

"National banks are required by law to receive at par any and all notes or bills issued by other national banks. Congress, under its constitutional power to promote the general welfare, should also compel the national banks of New York to accept checks on any of their number.
"There can be no question that it would promote the general welfare. History shows that in this country no great panic has started anywhere but in New York, and there could not be one if at all times checks on every national bank there were accepted by all.
"Bank notes are always received, though the bank that issued them may have failed. So, in New York, checks on national banks should be received by national banks though the banks drawn on were good or bad, open or closed. National banks have lost nothing by receiving at parnational-bank notes. And the national banks of New York would lose nothing in the end by receiving checks on other national banks in the city under all circumstances.

"Investigation would show that more than one of the closed banks in New York were assassinated by other banks there. The offense of bankassassination is criminal in its nature. To protect depositors against the effects of bank assassination, the criminal character of refusals to accept checks on other national banks of New York should be recognized in the law of the land.

"To refuse checks drawn on a New York bank which, though temporarily embarrassed, has sufficient funds to meet them by any process of liquidation is a form of malicious mischief which, if it results in closing the bank, may annoy and injure thousands of citizens, with their wives, children, parents, and creditors.
"In New York it is the old story of Cain. 'Where Is thy brother?' And he answered, 'I know not. Am I my brother's keeper?' Then the Lord said,' 'What hast thou done? The voice of thy brother's blood crleth to me from the earth.'

"The New York banks assert the right to be their brother's keeper. Ever since June 4. 1884. in the month following the failure of the MarineNational Bank, the clearing-house committee has been empowered, whenever it considered it for the interest of the association, to examine any bankmember of the association and to require from any member securities of such an amount and character as the committee might deem sufficient for the protection of the balances resulting from the exchanges of the clearing house.
"Since 1890 every nonmember bank or institution clearing through a member has had to submit to the same examinations as are required of members.

"Under these conditions, the clearing-house committee can always know whether a bank is solvent or insolvent and take measures to close it up before more than the amount of its capital and surplus is lost or dissipated. The committee could give public notice in the newspapers that checks drawn against funds already in the bank would be received by the national banks in the clearing house, but none would be received when drawn on deposits thereafter made.
"This would fully protect depositors, protect tire other national banks of New York, and put an end to the business of the offending bank.
"What objection could any Member of Congress from any district outside or inside of New York have to requiring the national banks of that city to receive cheeks on every national bank of New York, whether it were sound, temporarily embarrassed, or even closed and in process of liquidation?
"It is not pretended that Congress could constitutionally single out New York and apply the law only to banks there. To be constitutional the law must apply to all central reserve cities; that is, to Chicago and St. Louis as well as New York. Any of them could escape the operation of the law by ceasing to be a central reserve city.
"If the national banks of New York, with their intimate knowledge of each other's condition, were afraid to be responsible for all checks and drafts of depositors and correspondents properly drawn on them Congress should, as it would by the passage of this law, compel them to acknowledge before the whole country their want of confidence in themselves and thus warn the public.
"As a matter of fact, there are no safer banks in the world than in New York, Chicago, and St. Louis. And this law would only give universal publicity to that fact."

[From the Evening Star of May 8, 1908.]
Plan To Save Banks—J. C. Hallock Has New Method To Propose To ConGressUseful In Times Of Panic—Suggests Legislation AffectingCenTral Reserve CitiesSolves Financial ProblemWould Make It ComPulsory Upon National Banks To Accept Checks From OtherInstitutions.
Runs on national banks and the financial difficulties attendant thereon can be prevented, according to J. C. Hallock, of Brooklyn, N. Y., if Congress will lend a helping hand. Mr. Hallock is here to present his views to the lawmakers and to describe in detail his plan to guard against financial troubles in the great cities. Mr. Hallock's father originated the clearing-house system in America.

Progress In Legislation.
"The complaint throughout the Union that national banks of New York refused last fall to furnish currency for needs of interior banks," said Mr. Hallock to a Star reporter, "has been heard by the Republican caucus and a bill recommended that would enable national banks in central reserve and reserve cities to obtain all the currency they required to supply the needs of interior banks. This would be progress in financial legislation.

"But will Congress turn a deaf ear to another crying evil of the times? The country has unnecessarily suffered from the suspension of banks that have sufficient assets to pay depositors in full. For years past all national banks in New York, Chicago, and St. Louis have had such a sufficiency of assets and been so safely managed that the national banks of these three central reserve cities would not lose a dollar if Congress compelled everynational bank of New York to accept checks on all the other national banks of that city, every national bank of Chicago to accept Chicago checks, and every national bank of St . Louis to accept St. Louis checks, whether the national banks drawn on were open or closed. This would protect all their depositors and correspondents everywhere.
"A bold proposition; But no more or less bold than the resolve of the Republican Party in 1861 to save the Union. There are only 37 nationalbanks in New York, 14 in Chicago, and 8 in St. Louis. They are in position to protect themselves against loss, if made responsible for all legitimate claims of depositors and correspondents on themselves. Experience during the past fall and winter has shown the necessity and justice of making them responsible.
"The chief characteristic of the late panic was distrust of New York banks. Would there have been any panic to speak of, if there had been no runs on the Mercantile National Bank, on the Knickerbocker Trust Co., on the Trust Co. of America, on the Lincoln Trust Co., on the Brooklyn banks? Without those runs, would interior banks have been frightened?

"All the trouble came from those runs. Could they not have been prevented? Surely they could. For example, during the last week of January New York concocted runs on four members of the clearing house, which resulted in closing the National Bank of North America Monday, the 27th; New Amsterdam National Bank Wednesday, the 29th; Mechanics & Traders' Bank Thursday, the 30th; Oriental Bank Friday, the 31st; and the Home Bankof Brooklyn February 1. There is a way to prevent such runs. The New York banks should have done for their associates what the Canadian banks did for the Sovereign Bank of Canada, which went out of existence without closing its doors. That trick of closing up a failed bank without closing its doors is worth knowing.
"The Sovereign Bank was a large institution, with many branches and $14,000,000 of deposits. On Saturday, January IS, 190S. its president publicly announced that an agreement had been made with a number of banks by which nearly all the branches of the bank would open that morning as branches of other banks: that this arrangement would entail no loss of any kind to the bank's depositors or customers; that they could withdraw their deposits if they pleased or they could allow them to remain with the bank to which they had been transferred; that the Sovereign Bank of Canada pass books would be surrendered and pass books of the new banks obtained, but that borrowing customers would, of course, have to make other banking arrangements as soon as possible.
"The passing of the Sovereign Bank was accomplished without even a ripple of excitement in the market. An American visiting Toronto at the time said:
"'Why, if this were New York or Chicago there would be a line of people halfway up the street crowding and fighting for position, and not only that, but there would be crowds in front of all the other banks. I don't know how you do it.'

"The bank and all of its branches opened as usual on that Saturday morning, and a few depositors withdrew their savings, but the transaction of business went on very much as usual. Every depositor who did not wish to withdraw his savings was given another book issued by the bank that had taken over that particular branch. It is interesting to note how the bank was partitioned among the 13 banks that guaranteed the deposits and took over the branches. The head office and Market Street branch in Toronto were taken over by the Canadian Bank of Commerce, while the business of the two offices was apjKirttoned among seven banks. The Toronto offices were kept open for a month or so, until the business could be wound up, but then closed. The savings accounts were divided as follows: Nos. 1 to 1299, to the Merchants' Bank; 1300 to 2899, to the DominionBank; 2900 to 3599, to the Bank of Nova Scotia; and 3600 and on to the Bank of Toronto. For the accunts custmers outside of Toronto the following arrangements were made: The Dominion Bank took over 7 branches: Standard Bank, 8; Bank of Hamilton, 6; Bank of British North America, 2; Merchants' Bank, 2; Imperial Bank, 8; Bank of Nova Scotia, 3; Bank of Toronto, 5; Bank of Ottawa, 3; Royal Bank of Canada, 6; Bank of Montreal, 10; and Canadian Bank of Commerce, 16. Later a few of the 76 branches were redistributed and taken over by the Eastern Townships' Bank.

"What was there to prevent closing the National Bank of North America at New York in that manner? Its deposits had been reduced to $3,500,000 by previous withdrawals. Divided among a dozen banks in New York the deposits would not have amounted to $300,000 for each bank. Those deposits will sooner or later be paid in full, principal and interest. The New York banks would incur no more risk in taking them over than the Canadian banks did in guaranteeing and taking over the deposits of the Sovereign Bank.
"The National Bank of North America, established in 1851, was one of the banks that organized the New York Clearing House in 1853. In the fifty-fifth year of its membership, stricken unto death, it resigned from the association to expire the next day without arrangements for decent burial.
"The Mechanics & Traders' Bank, established in 1830, and the Oriental Bank, established in 1853. have also been members of the New York Clearing House since its organization. The former had 2 branches in Manhattan and 10 in Brooklyn; the latter a branch in the Bowery. The suspension of the Mechanics & Traders' Bank compelled the Home Bank of Brooklyn, which cleared through it, to close its doors. All these banks and the New Amsterdam National Bank will pay depositors in full. Why should these 18 banking offices have closed in one week and left 18 groups of depositors temporarily without the use of their money?
"We have seen how in Canada nearly 80 officers of a failed bank, instead of being closed, were kept open as offices of other banks. Can not the same be done in the United States?

"Take the Mercantile National Bank of New York. The clearing house determined to get Morse and Heinze out of that bank. The clearing-house committee could have quietly told those gentlemen that unless they retired the committee would suspend the bank and recommend to the association its expulsion from membership, with a joint guaranty of its legitimate deposits and an offer to depositors to accept their checks for credit, and, if desired, payment at any bank in the clearing house or at a number of designated banks. That would have ousted Morse and Heinze, protected the depositors, and caused no distrust in New York banks. The clearing-house committee alarmed the country by suddenly announcing one day that the Mercantile National Bank would be supported by the association for only 24 hours longer.
"There was the Knickerbocker Trust Co. The Clearing House Association might have informed the public that checks on that company would be accepted for deposit by every member or by certain ones. Nobody, no bank, in town or out, would 'nve lost by that, and all distrust engendered by that failure would have been avoided. The Knickerbocker Trust Co., Trust Company of America, and other institutions should have been reorganized without loss or inconvenience to depositors and without creating the impression throughout the country that the New York banks were rotten, which they are not.
"Nobody but the banks themselves are responsible for any run on any bank in New York or Brooklyn. And if there had been no bank runs, how much of a panic would there have been in 1907? None at all.
"On the night before its suspension the president of the Mechanics & Traders' Bank gave out a statement, in which he said:
"' The clearing-house committee informed the officers of this bank at 5 o'clock this afternoon that the clearing house had determined to afford no further assistance to any bank.'
"Congress should compel the New York banks to stand together for mutual protection against runs and bank suspensions that cause inconvenience or loss to their depositors and correspondents throughout the country. Investlga
9326"—S, Doc. 232,63-1—vol 2 48

tion reveals the power of Congress to protect the American people In this matter.
"New York bankers are somewhat like the little children in England who went to a penny show last winter. When the gallery was filled, those on the stairs were turned back. At a sharp turn in the stairs they met others coming up. There was first a crush and then a panic in which 16 children were killed. New York banks have been colliding and crushing one another. Congress can make them stop that. If before turning the children back some one had stopped those coming up, there would have been no fatalities at the show. If Congress makes the national banks of New York accept checks on other national banks of that city there will never be any more trouble there."
The cause of the panic in 1907 was the elimination of Heinze, Morse, and Thomas from banking organizations of New York City by the clearing-house committee, Sunday, October 20, as chronicled in the" New York dailies and Washington Post of the following day, as follows:
[The Journal of Commerce and Commercial Bulletin, Monday, Oct. 21, 1907, p. 1.]
$10,000,000 Pledged To Save BanksSunday Meeting Of Bank Officers At
Clearing House.
Believe Their Action Will Prevent Withdrawals Of Deposits From Banks Under CriticismMorse Retires From All His Chain OfBanksPresident Curtis, Of The Rank Of North America, Retires In Favor Of William F.
Havemeyek Culmination Of The Movement To Buy Up Banks To Secure
Their Loaning Facilities.
Yesterday—a Sunday—was a history-making day in banking circles of New York.
The principal developments may be summarized under the following heads:
First. One of the largest and most representative meetings of bank presidents was held at the New York Clearing House.
Second. A total fund of $10,000,000 was pledged by a score of individual banks to extend aid to banks and render such assistance to meet their deposits as the clearing-house committee may think necessary.
Third. Mr. William F. Havemeyer was elected president of the National Bank of North America in place of Mr. Alfred H. Curtis, who succeeds Charles W. Morse as vice president.
Fourth. Election of Seth M. Mllliken to succeed F. Augustus Heinze as president of the Mercantile National Bank, and William Skinner and Gerish H. Mllliken as additional vice presidents.
And to those may be added what was really a Saturday development, namely:
Fifth. The announcement by Charles W. Morse of his withdrawal from any voice in the management of any banks he has purchased into.


These important developments all center around a single point, namely, the culmination of the policy that has been an unfortunate development of the last decade, that of buying the control of a bank, then putting up the stock representing that control as collateral for funds to buy control of another bank, and continuing the process with banks and trust companies so that the final result is a pyramid controlling "chains" of financial institutions, the funds of whose dei>ositors thus become available, in the form of loans for the private or company enterprises of the shrewd manipulators. There is no denying that the crisis that the clearing-house banks have come together to avert has been a serious one; but the clearing house officials are positive they will be successful and will at the same time succeed in crushing out an evil that they have been powerless to deal with until now. But now that the opportunity has presented itself they will, it is no overstatement to say, make the cure a complete one. Thus far they have been called upon to deal with Heinze and Morse, but it is understood that several other financial institutions of comparatively small importance are under consideration, and the cl«wrlng house will render no aid to any institution dominated by other than banking interests until a complete withdrawal has taken place of the objectionable domination.


The clearing-house committee was at work all Saturday night examining banks under criticism, and it is when they had explained the situation to the large meeting of bank presidents at the clearing house yesterday, they were a practically fagged out company of men. President James T. Woodward, of the Hanover National Bank, who is chairman of the clearing-house committee, had returned from Maryland for the purpose of presiding. Among those present were J. Edward Simmons, president of the Fourth National Bank; James StiUman, president of the National CityBank; William A. Nash, president of the Corn Exchange Bank; Dumont Clarke, president of the American Exchange National Bank; Edward Townsend, president of the Importers & Traders National Bank; A. Barton Hepburn, president of the Chase National Bank; George F. Baker, president of the First National Bank; James F. Cannon, vice-president of the Fourth National Bank; Samuel Wolverton, president of the GallatinNational Bank; Alexander Gilbert, president of the Market & Fulton National Bank; Richard Delefleld, president of the Park National Bank; Robert M. Galloway, president of the Merchants National Bank, and, in fact, the presidents of nearly all the large banks of the city.
The meeting began promptly at 10 o'clock and did not adjourn until nearly 2 o'clock, when the following official summary of the meeting was prepared for publication and was also cabled to press associations abroad for publication there.
A committee of the New York clearing house to-day issued a statement declaring that after having made an examination of the several banks of the association that have been under criticism they have found the banks solvent and have decided to render them assistance if necessary. The statement follows:
"A committee of the clearing house has examined the several banks of the association that have been under criticism and find them solvent. The clearinghouse committee have decided to render them such assistance to meet their deposits as the committee may think necessary."
As already noted, Mr. Woodward presided, and the reports of the committee who had been examining the various institutions was fully discussed. They found that the National Bank of North America's capital was fully intact; that the Mercantile Bank was in a position where they could assist it, and that the Bank of New Amsterdam was in a solvent condition. It was decided that all three institutions should be given what aid the clearing-house committee thought necessary, on condition that the institutions should eliminate from their boards and from their control the element that had brought their banks to the condition in which they are now, and, to quote a clearing-house member, "Clean house and make themselves respectable." Under such conditions the meeting decided that the clearing-house bankers would "go behind the banks in question and take care of them."

The practical action taken by the meeting was to pledge a sum of $10,000,000 for the use of the committee on the lines laid down. This means that the institutions are going to be saved, and it was the belief at the meeting of bank presidents that the action taken would be sufficiently reassuring to the public to prevent any large withdrawal of deposits to-day and will relieve the entire situation.

[The Journal of Commerce and Commercial Bulletin, Tuesday, Oct. 22, 1907.]

The Beginning Of Bank Reform.
The clearing-house committee has rendered a most valuable service to the banking community by coming to the assistance of certain banks in the association which had been weakened by bad management and giving assurance that the interests of depositors would be made secure, but the most important part of that service lies in the condition upon which it was rendered. This condition was that the bad management should cease and the causes of it should be eliminated. As these causes have long been known, it is unfortunate, if not discreditable, that action should be deferred until the evil results were fully developed and disastrous consequences were threatened. Earlier action might have been resisted and it might have lacked needed support, but if there had been sound sentiment and a high sense of integrity and prudence in the financial community the abuses that were sapping and weakening the banking system would never have been permitted to grow up, and the clearing house has always been in a position to prevent them by a vigorous assertion of its influence.

We have frequently condemned, before this acute situation was revealed by the failure of a speculative stock operation in which a prominent bankwas involved, the practice of allowing regularly organized and supervised banking institutions to pass into the control of promoters, speculators, or great corporate concerns engaged in other business to be used to serve their purposes. That practice was a violation of sound banking principles and was sure to demoralize banking methods and lead to dangerous abuses, for it is the duty of a bank chartered by law and subject to public supervision to guard the interests of all its depositors and treat all its customers with equal fairness and consideration according to their Just claims. The relation of directors and officers to them is one of trust and confidence, and they should not have personal interests in conflict with the obligations that such a relation entails. When promoters and financiers with schemes of their own to advance or large interests to serve in which they are personally concerned gain control of a bank or a "chain of banks" for the purpose of using them in their business, there is sure to be a departure from sound and safe banking methods and other interests are endangered. No countenance should be given to such control of banks by public authorities having any power to prevent it or by such an association as that of the New York Clearing House.
The case of F. Augustus Heinze and the Mercantile National was typical, though an extreme example. When Heinze obtained control he began to use the bank to promote his own purposes and advance the interests of himself and thos associated with him, as, considering his past career, it was to be expected that he would. The result is also what was to have been expected sooner or later, but there are other cases of the same kind, though less flagrant. The exploits of C. W. Morse in banking are typical in a different way. He was engaged in large schemes of promoting steamboat and water transportation enterprises and had use for banks. He instituted the plan, not altogether new, of controlling "chains of banks," more or less interdependent and cooperative, by buying a large interest in one, using its stock as security for raising funds to buy into another, and so on until the pyramid of control was complete. Banks so controlled or largely influenced in their management were sure to serve first the interests of those exercising the control or dominant influence, at the risk of sacrificing or imperilling those of other depositors, borrowers, and stockholders. Requiring a complete change in the direction of the Mercantile National Bank and impelling the withdrawal of "controlling interests" in others needing support as a condition of clearing-house assistance to restore them to confidence was a wise move on the part of the clearing-house committee.
But the process of banking reform ought not to stop there, though its effectiveness will depend less upon definite action than upon the influence of sound and vigorously asserted sentiment on the subject. Every effort should be exerted to put our banking upon a basis of sound principle and upright methods, and making it independent of all sinister influences which would make it subservient to special interests of any kind. The control and management of banks should not be entangled with that of corporate affairs in other lines of business, such as insurance, railroads, and industrial concerns, in a way to put them under obligation to serve these and to discriminate against others. This is an element of evil that has been working insidiously and is widespread. It is to be feared that its infection has gone far and deep in some of the strongest members of the clearing house association, but its ravages are most serious in a class of institutions that are outside of its jurisdiction. Lack of adequate regulation, supervision, and publicity has made of some trust com|»inies the pliant tools of syndicates, promoters, and speculators until they have lost their original character and belled their name. In the system of banking institutions at this financial center there is much that needs reform, but the greatest need is a reform in sentiment and opinion, which shall elevate the standard and purify methods, making of banking the conservative power and directing force that rightly belongs to it, a tower of strength and a rock of defense for the business community.

[The Journal of Commerce and Commercial Bulletin, Wednesday, Oct. 23, 1907, p. 4.] A TIME FOR KEEPING COOL.
Whether the derangement started by disclosures affecting the Mercantile Hnuk and the Knickerbocker Trust Co. is to spread into financial disaster depends much upon the temper of the public, as well as the spirit of the financial community. It is a time for keeping as cool and calm as possible and acting with prudence. Most of our financial institutions are undoubtedly sound and safe, and can do much to sustain the whole fabric of credit and carry it safely through if they are not harrassed by importunate and unreasonable demands. Nothing is worse than precipitate " runs," for no bankcan be instantly prepared for these.
There should especially be abstention from exciting and disturbing comment. The voice of the President of the United States at such a time, if uttered at all, should be reassuring rather than irritating, and the remarks in his Nashville speech yesterday were most injudicious. It may be true, that the President's policies have had no material effect in bringing about the present trouble, but it is no time for harping upon that and reiterating threats of keeping up the effort to punish successful dishonesty." The press, too, should avoid aggravating the situation. It is a time just now for cool heads and calm speech and a prudent treatment of an acute situation.

[The New York Sun, Monday, Oct. 21, 1907, p. 1.]
Finds Its Banks Are SolventClearing House Completes Drastic Purgino ProcessBoth Thomases RetiredAny Clearing-house Bank ThatMay Need Cash Will Get It Now.
W. F. Havemeyer, President Of The Bank Of North America, And Seth M.
Milliken, Of The Mercantile National C. W. Morse Credited With Putting Up
Quite Ficht, But The Clearing Souse Was Insistent With His BanksThe Thomases Went At The Word GoSold Their Stocks, Too, AsMorse Did NotBig Clearing-house Meeting And Directors' Meetings On Sunday.
The clearing-house committee worked on Sunday, and last night a state of contentment and satisfaction succeeded the foreboding and disgust created by the sordid disclosures of the previous half dozen days in certain clearing-house banks in which the Helnzes, the Thomases, and Charles W. Morse were officers. Every banker important in clearing-house circles was entirely satisfied that the clearing house had completed its work of purging thoroughly and well. It had driven out of control of clearing-house banks the elements that were considered unsound and unsafe, and had vastly improved the banking situation by relieving it of skyrocket banking.
Moreover, bankers were unanimous in the belief that they had done their work in time to save all the banks in which the loose banking methods were practiced. Not only had they done it in time, a clearing-house banker said last night, but they had done it in abundant time and found the banks solvent.
Therefore, after one of the most important meetings in the history of the clearing house, a meeting at which there were present a remarkably large number of sound and responsible clearing-house bankers, and at which every phase of the situation was discussed, the bankers decided to support the National Bank of North America, the New Amsterdam National Bank, whatever other Morse banks might need assistance, and the Mercantile National. A thorough examination of the institutions had been made and the examiners reported them solvent beyond a doubt. The official statement of the decision was expressed as follows:
"A committee of the clearing house has examined certain banks of the association that have been under criticism and finds them solvent. The clearinghouse committee has decided to render them such assistance to meet their debits as the committee may think necessary."

Before this decision was given out, the process of eliminating unsatisfactory factors had been completed. In the place of Fritz Augustus Heinze, as president of the Mercantile, there had been selected Seth M. Milliken, a responsible and wealthy merchant. The Thomases had given notice of their resignations from the boards of the two clearing-house banks of which they were directors, and had not only resigned all other banking offices held by them in this city, but had announced the sale of their holdings in the only two banks they controlled, O. F. in the Consolidated National and E R. Thomas in the Hamilton Bank, and had resigned, respectively, as presidents of the two institutions. These banks are small concerns not members of the clearing house, and the clearing-house committee had not bothered about them. Nevertheless the news of the Thomas elimination from them was welcome.

In the case of Mr. Morse, also, the process of elimination had been completed by tentative arrangements for the transfer of stock control in his banks and the election of a new president in the person of W. F. Havemeyer at the National Bank of North America. Mr. Morse struggled hard to avoid the fate in store for him, but all his efforts were futile against the determination of the clearing-house bankers. As was stated yesterday, plans for the transfer of stock holdings were complicated by the fact that so much if not all of the holdings are hypothecated in various banks for loans.

"The gist of the situation is just this," a banker said last night. "The clearing house has decreed and has enforced the decree that persons who buy stock control in banks, put the stocks up as collateral for loans in other banks and borrow the deposits of the banks they and their associates control in order to float their corporation schemes, shall not do business under clearing-house auspices in this town."


In connection with loans from banks the clearing-house committee, before It would announce further aid to the Mercantile, bluntly and flatly told the Thomases, Mr. Heinze, and Mr. Morse that they must pay back their loans to that institution. There was no equivocation about it. Those loans must be paid, and that was all there was about it. They must pay them, too. forthwith; must pay them if they had to sacrifice their securities at an even lower range of stock market prices than, largely because of the operations of the Thomases, the Heinzes, and Mr. Morse, exist at present.

[The Washington Post, Monday, Oct. 21, 1907, p. 1.]
Banks Clean HouseHeinze, Morse, And Thomases All Are Now Out— Strong Support PromisedDanqer Crisis In New York BankingCircles Believed Over.
Clearing house Will Render All Necessary Aid To Affected Institutions Seth M. Milliken Elected President Of Mercantile National Ousted Interests Required To Repay Borrowings As Pheessential To Assistance.
New York, October 20.—The clearing-house committee late to-night announced that the Heinze, Morse, and Thomas interests had been eliminated from the banking organizations of New York City, and in the light of this fact, the clearing-house association declared its readiness to lend all necessary aid to any of the banks which have been under suspicion, the investigation having established their solvency. It is believed that this action will prevent any crisis in New York banking circles.
At a special meeting of the board of directors of the Mercantile National Bank this afternoon Seth M. Milliken was elected president of the bank to succeed F. Augustus Heinze, resigned. At the same time William Skinner and Gerish H. Milliken were elected additional vice presidents, Gerish H. Milliken being added to the board of directors. It is understood that the Mercantile National Bank will undergo a process of slow liquidation.

William F. Havemeyer, one of its directors, was to-day elected to the presidency of the National Bank of North America, succeeding Alfred H. Curtis, resigned. This is one of the institutions that had been controlled by Charles W. Morse.


The official statement of the clearing-house decision was expressed as follows:
"A committee of the clearing house has examined certain banks of the association that have been under criticism and finds them solvent. The clearinghouse committee has decided to render them such assistance to meet their deposits as the committee may think necessary.''
Before this decision was given out the process of eliminating unsatisfactory factors had been completed. Orlando F. and E. R. Thomas had given notice of their resignations from the boards of the two clearing-house banks on which they were directors, and had not only resigned all other banking offices held by thum in this city but had announced the sal« of their holdings in the only two bunks they controlled O. F. rhoinns, in the Consolidated National, and E. R. Thomas, in the Hamilton Bank, had resigned, respectively, as president of the two institutions. These banks are small concerns, not members of the clearing house, and the clearing-house committee had not bothered about them.
Following a conference of the directors of the institutions to-night, it was formally announced that William O Allison would succeed Orlando E\ Ihomas as president of the Consolidated National Bank. Mr. Thomas, it was said, had sold his holdings in the bank to Mr. Allison and Thomas J. Lewis, who already were large stockholders and active in the management.


"The gist of the situation is just this,"' a banker said to-night. "The clearing house has declared and has enforced the decree that persons who buy stock control in banks put the stocks up as collateral for loans in other banks and borrow the deposits of the banks they and their associates control in order to float their corporation schemes—such persons shall not do business under clearing-house auspices in this town The persons now detected Id it are cite first persons who ever got into the clearing house to perpetrate such acts. They are the first and they will be the last."
In connection with loans from banks, the clearing-house committee, before it would advance further aid to the Mercantile, bluntly and flatly told the Thomases, Mr. Heinze, and Mr. Morse that they must pay back their loans to that institution.
There was no equivocation about it. Those loans must be paid, and that was all there was to it. They must pay them, too, forthwith; must pay them if they had to sacrifice their securities at an even lower range of stock-market prices than exists at present, largely because of the operations of the Thomases, the Heinzes, and Mr. Morse.


Mr. Morse insisted, both at the stormy meeting in the Bank of North America Saturday night and at other meetings to-day, that he was worth $11,000,000, even if liquidated at present prices. The retort came easily and glibly that if this were the case Mr. Morse should have no difficulty in paying otf his loans. Mr. Morse insisted that he could; that his loans were amply secured, and that he ought not to be obliged to sacrifice his holdings in the depressed condition of the market.
With F. Augustus Heinze, bankers declared the question of payment of loans seemed entirely a matter of ability to do so. Mr. Heinze's borrowings are said to have been much heavier than those of either Mr. Morse or the Thomases put together, though there is doubt of this in the case of Mr. Morse. Mr. Heinze has a loan, secured by Mercantile Bank stock, in the Bowling Green Trust Co., of which Edwin Gould, from whom he bought much of the stock, is president. He also has a loan of $600,000 in a bank in which members of the Heinze party have an interest. He was notified several days ago—at the time of the collapse of the United Copper corner, in fact—that this loan must be paid. But it has not yet been paid


Mr. Morse, when seen at his home at 728 Fifth Avenue to-night, said he had no further statement to make in regard to his position in the banking situation. He said very emphatically that no pressure had been brought to bear upon him to resign from his official position in his New York banks.
"I was very glad to get out," he said. "There was nothing in it for me. I am satisfied with remaining a stockholder and having nothing further to do with the management of the banks in which I am interested. I do not intend to sell any of my holdings of stock in them.
"My only reason for resigning was that I felt that after all the notoriety connected with the Mercantile Bank, a formal resignation from the banks with which my name was officially associated would prevent anything in the form of a run upon them. There are to be no changes, so far as I know, in the directorate of the New Amsterdam or any other of my banks. I shall devote myself more now to my other interests."
Mr. Morse seemed very much amused when he was told that a story was current that he and his wife, thoroughly disgusted with the situation, intended to sail for Europe to-morrow.
"It is ridiculous," Mr. Morse said.
[The World, Monday, Oct. 21, 1907, p. 1.]
Clearing House Will Stand Back Of All The Banks.
Its committee announces that aid shall be extended to any of them needing if to meet their deposits. Morse, the Thomases, and Heinze, having resigned from them and disposed of their stock.
New presidents are chosen for four banks.
W. F. Havemeyer for National of North America, S. M. Milliken for Mercantile National. W. O. Allison for the Consolidated National, and W. R. Montgomery for the Hamilton.
J. Edward Simmons reassures the public.
J. Edward Simmons, president of the Fourth National Bank, and, in point of service, one of the oldest members of the clearing-house committee, has authorized the World to make the following statement:
"The action of the clearing-house committee to-day in sustaining the three banks that have been under criticism ought to reassure the public sufficiently and allay any further anxiety whatever."
By a victory absolute, unconditional, and relentless the clearing-house committee yesterday eliminated from the banking business of New York City Charles W. Morse, E. R. Thomas, O. F. Thomas, and F. Augustus Heinze, changed the presidents of four institutions, and then pledged the aid of their association to all the members during any crises that may arise
Accompimying this pledge was a clean bill of health for all banks that have been examined and the intimation that all others mentioned in the last week will be found solvent.
The action of the committee was regarded as most effective and so improved the general situation that it is believed there need not be a single failure, suspension, or liquidation for the present. The statement of the committee given yesterday morning follows:
"A committee of the clearing house has examined the several banks of the association that have been under criticism and find them solvent. The clearing house committee have decided to render them such assistance to meet their deposits as the committee may think necessary."
The effect of this statement was summed up last night for the World by J. Edward Simmons, president of the Fourth National Bank and in point of service one of the oldest members of the clearing house committee. Said Mr. Simmons:
"The action of the clearing house committee to-day in sustaining the three banks under criticism ought to reassure the public sufficiently and allay any further anxiety whatever."

In this expression Mr. Simmons was heartily supported by all other members of the committee seen, one bank president saying decidedly:
"Now that the criticized element has been effaced, there is no reason for any bank of the city to fail, and I do not think any one of them will go under. There may be a drain on some institution to-morrow, but that has already been provided for, and it will be met without difficulty. There will be enough support for any one of the banks to withstand a three days' run, and by that time we believe it will all be smoothed over and forgotten."
The plan under which the clearing house determined, instead of allowing the Thomas-Morse-Heinze to go under, to go to their assistance was thought of late Saturday afternoon, when the committee was holding frequent conferences with the four men mentioned; it was put forth as the only alternative and was in this way very tersely stated by the committee:
"Get out of the business, or you must look after yourselves Monday morning.
"It was frankly admitted that not one of the institutions or the men themselves could withstand the run that would follow such a decision, and the four men agreed to part with their holdings to whoever would be acceptable to the clearing-house men."
Charles W. Morse and the other men mentioned wrote their resignations as directors and officers of a score or more of banks and promised to place their stock with the committee to be sold. In this there was a slight hitch, for it was found that all four had at that time hypothecated their stock for loans, and the shares would not be available immediately.
Mr. Morse resigned as vice president and director of the National Bank of North America, as a director of the Mercantile National and the Fourteenth Street Bank, as vice president and director of the Garfield National Bank, as a director of the Lincoln National Bank, of Bath, Me., as vice president and director of the New Amsterdam National Bank, and from the New Amsterdam Deposit Co., the New York Mortgage & Security Co., the New York Produce Exchange. Van Norden Trust Co., and Van Norden Safe Deposit Co.
E. R. Thomas at a later meeting drew up his resignation as president and director of the Hamilton Bank, as director of the Consolidated National Bank, as vice president and director of the Mechanics & Traders' and the Mercantile National, and offered to withdraw from the Bowling Green Trust Co. and the Hudson Trust Co.
O. F. Thomas tendered his resignation as a director of the Bank of Discount and Consolidated National, of which he was president and director; the Hamilton Bank, the Mercantile National, and offered to withdraw from the Hudson Trust Co.
The resignations of Heinze had already been obtained and were added to the pile. They were from the Consolidated National and Mechanics & Traders', and the Mercantile.
With the effacement of the four men from the banking business the clearing house made the changes they thought necessary in the banks. The committee in these cases only suggested or approved the suggestions made for new officers.
[The World, Tuesday, Oct. 22, 1007.]
Clean House.
Through its committee the clearing house has eliminated F. Augustus Heinze and all of Heinze's directors from the Mercantile National Bank.Likewise it has brought about the retirement of C. W. Morse and E. R. Thomas from the banks with which they were connected.
Why should not the clearing-house committee complete the work it has so excellently begun and reestablish legitimate banking in New York by treating Ryan. Rogers, and Harriman as it has treated Heinze, Thomas, and Morse?
If the clearing house can rid the banking business of Heinze, Thomas, and Morse, it can rid the business of Ryan, Rogers, and Harriman. It can force the resignation of their dummy directors as easily as it forced the resignation of Heinze's. The fact that Ryan, Rogers, and Harriman are exploiting institutions of far greater financial strength than those manipulated by Heinze, Thomas, and Morse has nothing to do with the issue of honest banking.

[The New York Times, Sunday, Oct. 20, 1907, p. 1.]
C. W. Morse Quits The Banking Field.
With the resignation last night of Charles W. Morse from all the banks and trust companies in this city with which he was connected in any capacity whatever the entanglements arising from the United Copper and Mercantile National Bank affairs were much unraveled, and the prompt and vigorous measures of the New York Clearing House to clear up the situation carried well on toward complete success.
This step was prompted presumably by the fact that Mr. Morse found his general interests and his banking connections in such practical conflict that his resignation left the clearing house a freer hand to cope with the entire situation, which is now looked on as substantially cleared up.
This development, important as it was, was only one of a series, including the refusal by Controller Ridgely of the presidency of the Mercantile National, the occurrence of another big debit balance by that bank at the clearing house amounting to over $1,000,000, and a conference between the Thomas and Heinze interests at the Waldorf-Astoria, on which neither F. A. Helnze nor E. R. Thomas would comment.
At the opening of the banking day yesterday a meeting of the clearing-house representatives was held at the clearing house in order to consider the general banking situation, and more particularly to meet the necessities in connection with the settlement of the Mercantile National Bank's clearances.
This meeting was attended by Acting Chairman of the Clearing House Committee W. A. Nash, president of the Corn Exchange Bank; by Alexander D. Gilbert, president of the clearing house and the Market Fulton National Bank; by A. Barton Hepburn, president of the Chase National Bank; by Dumont Clarke, president of the American Exchange National Bank; by J. Edward Simmons, president of the Fourth National Bank; by George F.Baker, president of the First National Bank, and by Vice President Frew, of the Corn Exchange National Bank.

At this meeting the committee agreed to make up any part of the Mercantile National Bank's debit balance of $1,137,000, which the bank itself might not itself be able to pay. This balance the clearing house was called upon to provide the great bulk of this payment .
In connection with the decision of the clearing-house representatives to extend this aid to the Mercantile National yesterday as it had extended similar aid the day before, it was definitely made known that the committee was not committed to make any further payments on behalf of the"Mercantile National, and that each day's clearances were to be considered by the committee independently of any previous action which it may have taken.
It is, in fact, the understanding in the financial district that the committee is not disposed to continue assisting the Mercantile National if its debit balances at the clearing house continue as heavy as they were yesterday. It is known that the very large amount of the bank's debit balance yesterday was a surprise in clearing-house circles. Regarding the committee's attitude on this point, a member of the clearing house said yesterday:
"It is not the intention of the clearing house to pay off the deposits of the Mercantile National Bank. The action which the committee is taking, by which we extend temporary aid to the bank, but the bank must in the long run rely upon its own resources, and the committee can not be expected to go on providing for debit balances as heavy as that returned against the bank to-day."
Among the banks and trust companies from which Mr. Morse resigns are the National Bank of North America, of which he was vice president and director; the New Amsterdam National Bank, director and vice president; the Garfield National Bank, director; Fourteenth Street Bank, director; New York Produce Exchange Bank, director; Mercantile National Bank, director; Van Norden Trust Co., director. He is also in two financial institutions of Bath. Me., his native town. The officers of most of the institutions named acknowledged the receipt of Mr. Morse's letters of resignation, and the announcement itself was made by one of his personal associates.

Developments in the affairs of the Mercantile National Bank yesterday included the return at the clearing house of a debit balance of $1,137,000 against the Mercantile National, the bulk of which was made up by the clearing-house association; the refusal of Comptroller of the Currency Ridgely to accept the presidency of the bank, which the directors had offered him on Thursday; the appearance of further evidence of a strained situation between the old management of the Mercantile National Bank and the clearing-house committee; and, finally, the definite statement that the clearing house did not mean indefinitely to extend aid to the institution from which Mr. Heinze resigned as president two days ago.

[The New York Times, Monday, Oct. 21, 1907, p. 1.]
Banks SoundWill Be Backed.
The Strength Of The Clearing House Pledged To Give All Needed SupportThe Thomases Also OutSeth Milliken Heads Mercantile AndW. F. Havemeyer The Bank Of North AmericaDisturbing Factors Quit, And Speyeb, Sch1ff, And Other Leading Bankers Agree That TheSituation Is Now Cleared Up.
Following a prolonged meeting of the clearing-house committee, which lasted practically all Saturday night and was continued at the clearing house itself yesterday morning, announcement was made that the examination which the clearing house had made of the banks under criticism had shown them to be solvent and that the committee had decided to extend to them such aid as the committee might deem necessary to help them meet the demands of their depositors.
This referred specifically to the National Bank of North America and the New Amsterdam National Bank, from which Mr. Morse retired to aid in clearing up their affairs, but the announcement was taken as implying the banking situation generally.
At a late hour last night the Associated Press was assured by the clearinghouse committee that the Heinze, Morse, and Thomas interests had been eliminated from the banking organizations of New York City, a fact made patent by the events earlier in the day.
Banking houses of international prominence were agreed last night in the belief that the clearing house's measures will successfully meet the situation. Several bankern in this group, including James Speyer and Jacob H. Schiff, expressed their views to this effect to The Times.
The Chairman. If that is all you have and the committee have no questions to ask, we will adjourn at this time.
(The following communication, addressed to the committee, was, at the suggestion of the chairman, incorporated in the record at this point:)

Washington, D. C, October S, WIS.
The Currency Committee,
United States Senate, Washington, D. C. Gentlemen: Believing that you are attempting to get at the real sentiment of the bankers of this country regarding the proposed currency bill and not desiring to take too much of your valuable time, and having been requested by the bankers of the western half of the State of South Dakota to represent them before your committee, am placing before you, in writing, our objections to the pending bill.
I believe that the bill will not meet with the approval of the banks of the State which I represent, and unless very much modified, many of thenational banks will he compelled to leave the national system. We believe firmly in Government supervision but not in Government control, more especially when we are furnishing the capital.
Second, we believe that the taking advantage of the plan proposed should be optional and not compulsory.
Under the bill as it is at present we would suffer considerable financial loss; take, for instance, the bank of which I am the president, the FirstNational Bank of Deadwood. S. Dak.; we have a capital of $150,000; 20 per cent in stock in the regional bank would take $30*000; our deposits are in the neighborhood of $1.300.000; 5 per cent of this amount as a reserve in the regional bank would be $00,000. On the first-named amount we are to receive 5 per cent dividend, if the regional bank earns it; with any more than three regional banks their ability to earn this amount we very much doubt. On the latter amount we are not to receive anything, so out of our capital of $150,000 we must have invested in the regional banks $95,000, almost two-thirds of our capital, which we can not use and on which we receive no return. Then again, the bill as now constructed takes from us one of our large items of revenue, the item of exchange. The loss of this revenue to country banks will prove a severe hardship to them; in our bank this is in the neighborhood of $6,000 a year, and I believe this a fair average of country banks existing under the same conditions as we do.

Before leaving for Washington I solicited nearly every national bank in that part of South Dakota which I am here representing as to how they consider the bill as now proposed, and almost every one replied and practically as I have outlined.
I am thoroughly conversant with the fact that the objections I have made are not new to your committee and that practically every section of the country have brought the attention of the committee to the same ones, but we are desirous of stating herein most emphatically that we believe, with the great majority of the bankers of the United States, that the bill in its present form is unworkable, and a great many of the banks now in thenational system will refuse to accept the provisions of the same by leaving the national system and applying for State charters.
Thanking you on behalf of the bankers of South Dakota for any favorable consideration you may give this communication, I am,
Very sincerely, yours, N. E. Franklin.
(The chairman also presented the tables for insertion in the record which face this page.)
(Thereupon, at 2.40 p. m., the committee adjourned until Monday, October 6, 1913, at 10 o'clock a. m.)

Committee On Banking And Currency,
United States Senate,
Washington, D. O.
The committee assembled at 10 o'clock a. m.
Present: Senators Owen (chairman), Hitchcock, Reed, Pomerene, Shafroth, Hollis, Nelson, Bristow, Crawford, and Weeks.
The Chairman. Gentlemen, I should like to say for Mr. Shibley that he has been a long time engaged in the study of public questions. He has been a publicist in, I think, a very patriotic and high sense and is a man for whom I have a great respect. He was invited to appear before the committee, especially in connection with the probable effect of this bill and what might be possible under this bill in promoting a more stable price level. He has made a specialty of studies along that line.
The book you have before you is a book dealing with the wholesale prices from 1890 to 1912, showing the methods by which the Government has been trying to ascertain a means of knowing what

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