thanks to M.B. who took the time and trouble to darken the door of Stanford library, and looked up and photocopied the text.
Congressional Record — Senate.
1908 March 11
page 3149

Senate bill 3023
Amendment of National Banking Laws.

Mr. Clarke of Arkansas. [James Paul Clarke 18541916]  I ask the Chair to lay before the Senate the unfinished business.

The VICE-PRE SIDENT.  The Chair lays before the Senate the bill indicated by the Senator from Arkansas.

The Senate, as in Committee of the Whole, resumed the consideration of the bill (S. 3023) to amend the national banking laws.

Mr. Clarke of Arkansas.  Mr. President, I gave notice a days since that I would to-day address the Senate on the so-called "Aldrich bill," and incidentally the substitute reported by the minority of the Committee on Finance.  I am quite indisposed this morning, and I shall content myself to-day by occupying, I trust, not to exceed ten minutes in stating the reasons why I think no legislation of this kind should now be enacted.

Mr. President, I believe that when we consider the magnitude and the consequences of the recent panic and the remedy now proposed, so revolutionary as that which the pending bill or the substitute seek to introduce into our financial system, there should be the most perfect knowledge of the entire situation that diligence and authority can obtain.  I do not believe we are in possession of such information as will enable us at this time to proceed intelligently.  I believe that the proposed legislation is premature.  I do not believe it necessary, and think it may become dangerous.  Because I find my mind in that condition I am not disposed to tolerate the idea of supporting the committee bill nor the substitute proposed by the minority of the committee.  I understand by "minority" the Democratic members of the committee, and my respect for the eminent Senators who constitute that minority requires me to state in a few words why I shall not be able to vote for the substitute.

In the first place, I believe that the character, extent, and cause of the panic are perfectly well known to those who have exercised the diligence and who have devoted the time to ascertaining these things.  There was nothing the matter with the general prosperity, industry, or temper of the people at the time the panic occurred.  It came as a great surprise.  It found the people busy.  It found the transportation companies with an excess of business upon their hands.  It found a hopeful, prosperous people.  With the suddenness of the onslaught of a robber band news came out from the stock exchange in New York that business had to be suspended until the victories of one faction of predatory manipulators over another could be adjusted and the loot divided among those entitled under the rough code of the conflict to receive it.  I say I think that can be established with that degree of certainty which legislators ordinarily require as the foundation of their official action.  I believe it can be demonstrated beyond ground for rational controversy that the panic had its origin within the confines and zone of influence of the New York Stock Exchange, and that whatever remedy is found necessary should not precede the definite ascertainment of its true cause.

I repeat that this legislation is premature, if not dangerous.  It is plain that the predatory element of the national banking organizations will take advantage of the distress and demoralization in the commercial affairs of the country that has followed in the wake of that panic to demand further concessions to them, to be ultimately again directed against the commercial peace of this country.

I believe there is now in use in this country a sufficient volume of money to conduct its legitimate business.  Every test by which such a state of facts can be demonstrated points to that conclusion.  But I shall not undertake to deal with that phase of it to-day, as I have promised to occupy only a few minutes to indicate why I think I ought not to support the substitute of the Democratic minority of the Finance Committee.  There are many features of that substitute that constitute improvements over the bill of the majority of the committee.  There are many features of the bill which, compared with provisions in the other bill intended to subserve similar purposes, are far inferior.

In the first place, the committee bill proposes to disburse this money—to filter it out to the people—to allow them to enjoy such incidental benefits as may come to them through such national banks as have circulation outstanding in an amount equal to 50 per cent of their capital stock under existing law, and, in addition, having a surplus of 20 per cent.  That permits every national bank to qualify itself to participate in the benefits of the act by voluntary action without the exercise of any discretion in its behalf by any public officer.

The minority bill limits the right to enjoy the benefits of this extra use of currency to such national banks as have been or may be designated for that purpose as depositaries of public money.  If the Secretary of the Treasury shall not be more liberal in designating depositaries hereafter than in the past, the enjoyment of the privileges or benefits of the substitute will be limited to fourteen hundred only of the seven thousand national banks.

I see no reason why that restriction should exist.  If it is to be an emergency currency, the benefit of the supply should be extended to all who stand in need—whose legitimate business demands require that they shall be relieved by this unusual interposition of the bounty of the Government, and who are able and willing to furnish the required security.  I do not believe it should be limited to banks which have been previously designated or which might thereafter be designated for the purpose by the Secretary of the Treasury as depositaries of public money.

Mr. BAILEY.  Will the Senator from Arkansas permit me ?

Mr. CLARKE of Arkansas.  Certainly.

Mr. BAILEY.  The Senator does not quote the substitute exactly.  It says "which may be for that purpose," and it was not intended that they be necessarily depositaries generally, either active or inactive, but the Secretary of the Treasury, if he wanted to deposit the money anywhere, could designate national banks, or I do not limit it to national banks, so far as that is concerned.  For that particular purpose, and that purpose being served, as a matter of course that would end it.

Mr. Clarke of Arkansas.  I agree with the Senator about that.  He has exercised the privilege authorizing the naming of banks for the exclusive purpose of receiving deposits authorized by the substitute.  The great majority of the designated depositaries are of that character now.  They are not depositaries of public money generally;  only the surplus revenues.  I did not then misunderstand the purpose of the Senator, but I did not quite understand then, nor do I now, that it was his intention, in the language he used, to permit the designation of State banks as depositaries of public money.  I do not intend to differ with the Senator about what he personally intended to provide, but I make no doubt in my own mind that the language employed, read in connection with the power now existing to authorize any officer to designate banks as depositaries of public money, will confine the Secretary of the Treasury to the designation of national banks only.

Mr. President, I have had a little experience during the present panic in attempting to have three well-known, reputable, solvent, and well-managed national banks in the State of Arkansas, in neighborhoods remote from one another, in communities whose business required the temporary use of capital, designated as depositaries of public money.  They were turned down without the slightest hesitation, on the ground that there was no money available;  at least that was the reason assigned by the Assistant Secretary of the Treasury.  If I were in favor of an emergency-currency bill at all, I would be in favor of extending its benefits to everybody who can deposit the necessary security.  The very nature of the relief itself indicates that that is the proper basis of distribution.  It is because people can not get money out of the banks that they need it.  The Government provides the bounty for them in order to promote business, thus overcoming the congestion that results by reason of the fact that there is no medium through which current and necessary exchanges can be promptly effected, the crops moved, and the various forms of business that go to make up the volume of the commerce of the country properly conducted.

I would extend it and make it a matter of right to all, the only restraint being a matter of security.  Of course I would not expect that it would be dealt with upon such a small scale that a man could go to the Treasury, or some one of the subtreasuries, and borrow $5, but in amounts that would adjust themselves to business of that magnitude that usually finds its way into the transactions of the banking institutions of the country.

I believe the provision that deposits shall be made upon the basis of the population of the several States is a very excellent one, but I think it ought to be made a little more elastic than in this substitute.  I think if a State does not desire its quota, or if for any reason its banks are not willing or able to avail themselves of it, there ought to be a provision that, after reasonable time allowed in which to exercise the option, the amount allotted should be transferred to some other State where the necessity demanded relief and where the ability to avail themselves of it existed in adequate degree.

The effect of this substitute, especially in the cotton-growing States of the South, with the exception of the magnificent State of Texas and the State of Virginia, is that they can not avail themselves of it to the extent nominally permitted to them.  Texas never showed up better in her history than she does in connection with her national banking facilities.  To my amazement I find that that State has about the same national-bank capital and surplus as Indiana and Iowa put together;  about as much as Missouri and Nebraska put together.  Texas and the State of Virginia are the only two States in the cotton-growing region of the South that could, by reason of the limited national banking facilities, avail themselves of the full allotment assigned to them on population basis under the substitute.

I think, therefore, that both bills, as emergency measures, are too narrow to meet the exigencies of the situation that their passage, or either of them, contemplates.

But my chief objection is common to both, and that is the time has not come and sufficient information is not now before Congress to warrant it in saying that such defects have been developed in the operation of our financial system as to require that something shall be done not conceived of in the infancy of this Government, when it was experimenting with policies, when its business institutions were undeveloped, when its railroads and telegraphs were unthought of, when there was not that coherency in business between one section of the country and another which makes it easier to do business than ever before, and when there had not been introduced and in successful operation the many striking economies in the conduct of business which are now in existence.  I know that the necessary preliminary investigation has not been made and that we are proceeding to legislate under the pressure of a situation made no less acute by the predatory elements of the national banks because they have interests to promote at this time.  Investigation can be made now through official sources to an extent that will satisfy ordinary purposes, but I believe that the first duty of the Congress is to ascertain the cause of the panic, to the end that we may proceed advisedly and act decisively.  I do not believe that any Government upon the face of the civilized earth would have permitted an event of the character of the late panic, one which completely convulsed and demoralized for the time the commercial peace and prosperity of the country, to pass without an investigation which would have promptly and definitely disclosed its causes, and on the foundation of the knowledge thus acquired formulated and adopted a remedy that would have made impossible the recurrence of a similar event produced by the same causes.

Such an investigation as I have made in the matter justifies me in saying that the panic is directly traceable to the operations on the New York Stock Exchange, the cotton exchange, and the grain exchanges of the country.  I shall take a few minutes to say something about that, and then I will desist.

It is a demonstrated fact, which admits of no dispute, that about $1,000,000,000 of the loanable capital of the country is employed constantly in financing the so-called deals of the gambling operations on the New York Stock Exchange.  The report made to the Comptroller as late as the 22d day of August discloses the fact that the national banks of New York had $251,000,000 loaned on stock-exchange securities—that is, on call loan, without personal indorsement, and secured by stocks and bonds.

There were sold upon that exchange last year 300,000,000 shares of stock—an unthinkable amount.  There was put into the treasury of the State of New York from the State tax on those transactions $6,000,000.  In other words, the State of New York derived a privilege tax of $500,000 a month for permitting that business to be conducted.  The commission which the so-called "brokers" earned by reason of these transactions, as the rake-off on these gambling operations, amounted to $50,000,000.  There are 1,100 members, whose so-called seat or membership is worth $52,500 each, or $57,500,000 for the priviege of engaging in that sort of business.  It is not pretended by those who think they know, because that is about as definite as you can get at it—they keep their proceedings to themselves;  what gets out is merely in an incidental and fragmentary way—that 33 per cent of the transactions are mere settlements of differences on gambling operations, pure and simple.

No one pretends to defend the stock exchange against that charge, made over and over again.  A lawsuit took place not long since in the city of Chicago, where it became necessary to investigate the character of business carried on by the grain exchange there.  An issue was made as to the extent and character of the transactions there, and the proof showed that 95 per cent of the transactions on the grain exchange were a mere settlement of the matter of differences, and this in a case where the brokers made the greatest efforts to prove delivery by warehouse certificates or otherwise.

I think as long as such institutions exist, unless it is purpose of Congress to adopt them as a legitimate part of business establishment of the country, we should not increase the volume of currency so as to make provision for their nefarious schemes, and to thus treat it as a proper and commendable business institution.  But if its existence is a necessary and natural evolution of the business of our complex society, as one of the judges of the Supreme Court denominated it, then this bill ought not to pass until we determine for ourselves whether or not the time has come when that business should be put down, or if it should not be, then that we shall understand it as being a part of the recognized business system of the country that must be provided for accordingly.

I grant you that if a billion dollars of loanable capital of this country must be kept involved in stock exchange deals and not be subject to the control of legitimate business interests of the country;  or, to express it differently, if a billion dollars of loanable capital of the country must be devoted constantly to gaming—then, necessarily, it must exert a very considerable influence upon the disturbance of prices, for the methods of that institution make it necessary for it to disturb prices in order to make business.  It exists by that sort of financial disorder, an it could not live six months without it.

These institutions do not deal in stable stocks, except on rare occasions.  The stock of reputable national banks are never made the subject of speculation there.  In 1907 there were two railroad companies of whose stock there was sold, or, rather, the brokers sold (the roads did not have anything to do with it), more than thirty times the number of shares that were ever issued.

I believe this is about all I intend to say just at this time.  I had intended to deal somewhat at length with several aspects of the questions involved on this occasion, but I find myself unable to do it now.  My purpose has been to say in a word why I should not vote for either the committee bill or the substitute.  I am greatly disappointed to find myself unable do so at this time.  I may take occasion to say something here, after along the lines I intended to pursue this morning.  But as I take my seat I want to emphasize that in my opinion the time has arrived when, in the judgment of disinterested businessmen of the country, the affairs of the New York Stock Exchange and the other stock exchanges must be looked into.  This belief is almost universal among them.  The available proof justifies this sentiment, which is almost universally entertained.

Mr. BEVERIDGE.  Would it interrupt the Senator to ask him a question ?

The VICE-PRESIDENT.  Does the Senator from Arkansas yield to the Senator from Indiana ?

Mr. Clarke of Arkansas.  Certainly.

Mr. BEVERIDGE.  I have listened intently to what the Senator has said.  Do I understand this to be the situation ?  I ask for information because the Senator has studied it and I have not.  The banks throughout the country, in order to get the most interest that they can, deposit their money with the banks in New York, and the banks in New York loan out the money thus accumulated on call to transact the stock-gambling operations which the Senator has described;  then, when all of the money that is drawn to New York from all over the country is so locked up that upon the call of the contributing banks to the banks of deposit in New York the country banks will not get it.  Is that the situation ?

Mr. CLARKE of Arkansas.  It is.

Mr. BEVERIDGE.  Then the point the Senator makes against both the minority and the majority bill is that this excess of emergency currency would merely relieve the situation created in New York in the way the Senator has described ?  Would it not follow then that while it would more directly help the stock exchange transactions it would also in that very way relieve the money, so that the banks could send it back to the banks from which they got it ?

Mr. Clarke of Arkansas.  But I do not think that it is wise legislation to provide a benefit for the stock-exchange gamblers in order that the country bank may have the privilege of drawing its own money out of the New York bank.  I do not think we ought to pay tribute to the stock exchange to that extent.

Mr. BEVERIDGE.  I am somewhat inclined to agree with the Senator in what he has said.  His speech is very clear and very informing—it is one of the best speeches yet made in its keen intelligence and lucid statements, and I wanted to get the Senator’s exact views as to the conclusion to which it necessarily comes.  I am much obliged to the Senator.

Mr. CLARKE of Arkansas.  The banks, Mr. President, are induced largely to send money to New York to get interest.  But they have another reason, very substantial with them.  There comes a time when the country banks have to rediscount paper in order to carry on the business of the several localities where they do business.  They are accommodated in return in proportion to the state of the account they keep with the central bank, so that they thus find some mutuality about the business of depositing in legitimate bank operations.  They have no difficulty about getting a bank ordinarily—

Mr. ALDRICH.  Mr. President—

The VICE-PRESIDENT.  Does the Senator from Arkansas to the Senator from Rhode Island ?

Mr. CLARKE of Arkansas.  Certainly.

Mr. ALDRICH.  I suppose the Senator is also quite well aware that it is for the interest of the country banks to keep an account in New York entirely aside from any question of interest or any other question.  It is almost a necessity for the country banks in the matter of exchanges to keep an account in New York, whether they get any interest for it or not.

Mr. Clarke of Arkansas.  I will say that the country banks usually have business connections and customers that require frequently the drawing of drafts on New York.

Mr. ALDRICH.  It is undoubtedly true of almost every bank in the United States that they keep an account in New York.  If the Senator should go to a bank in Arkansas and get a check to pay a bill in Chicago, or in San Francisco, or anywhere else, they would give him a draft or a check on New York, probably.  New York is the great financial center of the country, and entirely aside from any stock speculative movements there, it is important that country banks and the banks of the country generally should keep accounts in New York.

Mr. CLARKE of Arkansas.  That is true, partially.

Mr. NEWLANDS.  Mr. President, if the Senator from Arkansas will permit me to interrupt him for a moment, I should like to ask the Senator from Rhode Island whether he thinks it is necessary to accumulate in New York the vast amount of reserves of the banks throughout the country in order to enable those banks to conduct the simple transactions of exchange on New York ?

Mr. ALDRICH.  Mr. President—

The VICE-PRESIDENT.  Does the Senator from Arkansas yield to the Senator from Rhode Island ?

Mr. CLARKE of Arkansas.  Yes, sir;  very cheerfully.

Mr. ALDRICH.  Of course there are varying amounts held by the New York banks of the banks throughout the country.  There are varying amounts dependent upon the season and upon the demands in various parts of the country.  I think myself that there is always a tendency to accumulate too much money in the banks of New York and too much of a temptation to use it for other purposes than the legitimate purposes of trade.  I agree perfectly with the Senator from Arkansas to that extent, but in ordinary seasons the banks must keep an account in New York.  That is entirely independent of the question of reserves.

Mr. BEVERIDGE.  Everyone will agree with what the Senator says, but is it not true that it is a comparatively small portion ?

Mr. ALDRICH.  I think it is much the larger portion.

Mr. BEVERIDGE.  You think it is much the larger portion ?

Mr. ALDRICH.  I think so.

Mr. BEVERIDGE.  I have had a very wrong impression.  My impression has been that it was a small portion.  My impression had been that while some of the money went there for legitimate purposes of exchange, most of it was accumulated there because the country banks found that in that way they could earn the largest possible interest on their money.  I am glad the Senator corrects me.

Mr. NEWLANDS.  Mr. President—

The VICE-PRESIDENT.  Does the Senator from Arkansas yield to the Senator from Nevada ?

Mr. CLARKE of Arkansas.  Certainly.

Mr. NEWLANDS.  Let me call the attention of the Senator from Rhode Island to the fact that one-half of the lawful reserves of the country banks and one-half of the lawful reserves of the reserve city banks go to New York.

Mr. ALDRICH.  Not necessarily.

Mr. NEWLANDS.  You will find by the statistics of last year that one-half of the reserves of the country banks was deposited in other banks and that one-half of the reserves in the reserve city banks was deposited in the central reserve city of New York.

Mr. ALDRICH.  There are three central reserve cities.

Mr. NEWLANDS.  Well, the bulk of it was deposited in New York.  I do not suppose the Senator will contend for a moment that one-half or one-quarter of that large amount is necessary to be deposited by the country banks and the reserve city banks in New York in order to conduct the ordinary transactions of exchange.

Mr. ALDRICH.  I should say, most assuredly.

Mr. TILLMAN.  Mr. President—

The VICE-PRESIDENT.  Does the Senator from Arkansas yield to the Senator from South Carolina ?

Mr. CLARKE of Arkansas.  Most cheerfully.

Mr. TILLMAN.  I want to suggest to the Senator from Arkansas that, so far as I understand his contention, he is not so much concerned as to whether the local banks or country banks shall have a deposit in New York against which they can check as he is concerned about our legislating here so that when those banks call for their money they can get it.

Mr. CLARKE of Arkansas.  The Senator is exactly right;  and I also want to stop stock gambling, as a means to this end.

Mr. TILLMAN.  I hope the Senator from Rhode Island, whose earnest efforts to better the financial condition I, for one, believe in, although I do not agree with his remedy, will aid us or will himself take the lead in furnishing some method by which the country banks can get their own money when they want it, and not let the stock gamblers hold it in their grasp by conditions which we encourage by our legislation.

Mr. BAILEY.  Mr. President—

The VICE-PRESIDENT.  Does the Senator from Arkansas yield to the Senator from Texas ?

Mr. CLARKE of Arkansas.  Certainly.

Mr. BAILEY.  I merely wish to say in this connection that all we need is a Comptroller of the Currency who will enforce the law, and then the New York banks will either give the country banks their money or he will put the New York banks in the hands of a bank examiner.

Mr. CLARKE of Arkansas.  That is a theoretical remedy.

Mr. BAILEY.  I simply say that is the law.

Mr. CLARKE of Arkansas.  It is the law that whenever a national bank makes default in the payment of its indebtedness it is subject to be proceeded against for insolvency.

Mr. BAILEY.  The Senator from Arkansas will agree with me that it is better the New York bank should be closed up for failing to pay its obligations than that a country bank should be closed up because it could not pay its obligations.

Mr. Clarke of Arkansas.  I agree entirely with the Senator as an abstract proposition.  But the practical difficulty with the attempt to apply a remedy would be that while the Comptroller would close the recalcitrant bank, the resulting demoralization would cause excited depositors to close a dozen more.

Mr. ALDRICH.  I desire to impress upon the Senator, and I desire to repeat, that the people of this country will never permit again, in my judgment, the banks to suspend payment in the arbitrary way they did last October.  I said that in my first speech, and I repeat it now.

Mr. CLARKE of Arkansas.  The Senator has a great reputation as a historian, but I would not trust him much as a prophet if he makes that declaration.  Whenever the same necessity presents itself they will do the same thing over.

Mr. Aldrich.  I think not.

Mr. CLARKE of Arkansas.  I know the complete terror that exists in the country when the people are uncertain about their bank- balances.  The people did not lose confidence in the banks in 99 per cent of the territory of the country.  They exhibited a forbearance that was absolutely monumental.

Mr. TILLMAN.  If the Senator will permit me, in my experience last fall I discovered that the greatest concern of the people in every town which I visited was that they could not get their own money out of their own banks, because New York had had a chill.

Mr. CLARKE of Arkansas.  That is true.

Mr. TILLMAN.  Old Confidence had taken to the woods in New York, and therefore he was in hiding all over Texas, Oklahoma, Missouri, and everywhere else I went.

Mr. CLARKE of Arkansas.  That is true.  Wherever the banking operations of the neighborhood in their ultimate effect ended up in New York there was a local panic, because of New York conditions and not conditions at home.  If the banks of the South and West had secured possession of their own money they would have never known that there was a panic raging, but it was prearranged that they should not do that.  From June until the 1st of September the banks of the South and West were induced to make loans to the national banks in New York by tempting offers of high interest rates on high-grade, short-time paper.  I saw a list of it in my home town, offering 7 per cent on such paper.  The money was thus lured into the banks of New York, not by the mere low rate of interest on reserves which they had there, but the New York banks drew many millions there by paying as high as 7 per cent interest on it for a short time.  The local banks of course supposed that before they would need it for local use the paper would mature and they would have credit for it with the banks of New York and could draw it out as necessity required.  But when the time came their calculations miscarried, with the result we now know.

I am about through, Mr. President.  I see the Senator from Rhode Island present.  There is just one feature of his bill more than any other that I think ought to receive attention.  He left out a provision for keeping the reserves at home that I think ought to be in, and he has put in a provision that the national banks may retire their normal circulation at will.  Parliamentary master that he is, I would discredit my own estimate of him if I believed he would leave the one out and put the other in, except for the purpose of having something with which to negotiate when he comes to hold the inevitable parley with the almost persuaded.  I do not believe he intends to pass the bill with a provision that all normal circulation can be retired at will.  I do not believe that he has overlooked the fact that necessity requires some modification of the law in regard to reserves.  I am opposed to permitting the local banks to deposit the reserve anywhere.  If they have money that they choose to deposit upon checking account, that is a different proposition altogether, having nothing whatever to do with the reserve.  That is to be regulated by the volume of business that passes between two banks.  That is a legitimate use of funds.  But I do not believe that that reserve is dead money, as the Senator from South Carolina [Mr. Tillman], or probably my friend from Mississippi (Mr. McLaurin], characterized it the other day.  No such fact is true.  It is just as much a part of the working capital of the bank as any other dollar in the bank.

It is not an amount of money at all;  it is the mere warning to the bankers that when they reach the limit of 15 per cent of the deposits they must thereafter be careful.

Mr. McLaurin.  Mr. President—

The VICE-PRESIDENT.  Does the Senator from Arkansas yield to the Senator from Mississippi ?

Mr. CLARKE of Arkansas.  Certainly.

Mr. McLAURIN.  I will say to the Senator that it was I who spoke of it as dead capital.  I stated that I did not believe it was the intention of Congress in enacting the law that it should be treated as dead capital, but that it should be utilized for the purpose of paying the checks drawn upon this reserve;  that the reserve was to be so much that could not be loaned out.

Mr. CLARKE of Arkansas.  On time loans.

Mr. McLAURIN.  On time loans by the banks.

Mr. CLARKE of Arkansas.  Even that is not enforced by a penalty.  It may be done over and over again and there is no penalty;  no presumption of wrongdoing that grows out of it.

Mr. ALDRICH.  Mr. President—

The VICE-PRESIDENT.  Does the Senator from Arkansas yield to the Senator from Rhode Island ?

Mr. CLARKE of Arkansas.  Certainly.

Mr. ALDRICH.  I mean to be perfectly frank with my friend the Senator from Arkansas.  I will say with reference to the $9,000,000 limitation that two years ago, I think it was, we raised the limit on retirement from $3,000,000 to $9,000,000.  I then stated that personally I thought there was no occasion, especially as we left the matter entirely in the control of the Secretary of the Treasury and the Comptroller of the Currency, to make that limitation.  The Senate did not then agree with me, and I have a notion that they will not agree with me now.  I expect that the limitation retirement of $9,000,000 per month, except as to emergency currency, will be retained in the bill.

So far as the question of reserves is concerned, I said when the bill was reported that the committee left it out because it would lead, we thought-, to a long discussion.  We have had the long discussion anyhow.  So I am now disposed, if I can, to get some provision affecting the reserves that will be satisfactory to Senators on both sides of the Chamber, and I want to do the very best thing possible.

Mr. CLARKE of Arkansas.  And so it has come to pass so soon that my standing as a prophet is recognized.

Mr. NEWLANDS.  Mr. President—

The VICE-PRESIDENT.  Does the Senator from Arkansas yield to the Senator from Nevada ?

Mr. CLARKE of Arkansas.  Yes, sir.

Mr. NEWLANDS.  May I ask the Senator from Rhode Island whether he would be willing also to fix the relation between capital and loans so as to prevent a bank from loaning out its depositors’ money in excess, say, of seven or ten times the amount of its capital ?

Let me say in this connection that the capital is the security of the depositors as much as the reserve.  Good banking requires that the reserves should be at least 15 or 20 per cent and the capital should be at least 15 or 20 per cent.  The average of the national banks of the country is about 20 per cent.  Now, would it not be wise to make that average compulsory so that we may have some of the weak banks secured only by reserve, with their insufficient capital, and others can be secured by the reserve required by law and also by sufficient capital ?

Mr. ALDRICH.  I regret that I can not answer that in the time of the Senator from Arkansas.

Mr. CLARKE of Arkansas.  I will be through in five minutes.  The character of the provision in regard to the reserve that would please me would be one affirmatively requiring a bank to keep the reserve at home, and another provision denying is a national bank the right to pay interest to any other national bank upon a demand loan or a checking account, usually called "daily balances."

Mr. BEVERIDGE.  Will the Senator please repeat the latter remark ?

Mr. CLARKE of Arkansas.  I say I would not only require the bank to keep a reserve at home, but I would deny to any national bank the right to pay any other national bank interest on a demand loan or a checking account.  Then only such deposits would be kept in a national bank as the legitimate business of exchange would require, the interest would not enter into the question, and whether the reserves could be used at home or not would not enter into it.  The matter would be disposed of on its merits as a business proposition to the mutual advantage of the two parties in interest.

Now, as I said, the reserve is as much a part of the working capital of the bank as any other dollar in it.  Strangely enough that question got to the Supreme Court of the United States.  There is a provision in the banking law that if a stockholder sells his stock after he knows the bank is insolvent, or after he has such knowledge of circumstances which followed up reasonably would lead to that knowledge, he does not escape the double liability by reason of transferring his stock to an insolvent transferee.

In the reported case the stockholder sold his stock, and the question arose as to whether he had knowledge at the time he disposed of it that the bank was in a failing condition, it having subsequently failed.  One of the reasons advanced to show why he knew the bank was insolvent was that its published statements repeatedly showed the fact that its reserve invariably went below the legal limit.  It was argued that he should have taken notice of that fact and by diligently following it up to ascertain the fact that the bank was insolvent.  The Supreme Court, in an opinion written by Judge White, said that under the law he was not required to take any notice of it at all.  The court refused to decide whether the provision is a directory or a mandatory statute.  Permitting the reserve to run below the limit is not followed by any penalty.  It depends upon the action of the Comptroller of the Currency in first giving the offending bank thirty days’ notice to replenish the serve, and a failure even then does not involve any consequence or charge anybody with notice of the irregularity.  It is only when the Comptroller of the Currency reports to the Secretary of the Treasury that that particular delinquency has been kept up so long as to justify him in placing a receiver in charge that it is done by direction of the Secretary and not by the Comptroller.

The course of dealing with it is to virtually constitute the reserve provision in the national banking law a mere warning to bankers.  They must be a little careful when they reach a certain point in their business.  Of course it is their duty to pay everybody they owe, and it must be done whether the cash on hand is below 15 per cent or not.

Mr. ALDRICH.  I think the Senator will agree with me that it has an entirely different signification as applied to the officers of the Treasury.  They are bound to take notice of it, and there are certain obligations on their part and on the part of the bank officers of which they must take notice.

Mr. CLARKE of Arkansas.  It is very true that the Comptroller of the Currency may take notice of it, but he will take under view the entire statement of the bank in doing so;  if he, from this, finds that there is no good reason for precipitating an event that must have a demoralizing influence in the community, he will overlook the matter with an admonition.

If there are discounts which are properly secured, and the investments of the bank are of a character that indicate that there has been a judicious use of its money, and that the reserve was encroached upon temporarily to relieve some situation that seemed to justify such conduct.  I take it for granted the Comptroller would pay very little attention to it;  and if he did, before any step could be taken against that bank, such action must be approved by the Secretary of the Treasury.

So I believe there is a widespread misapprehension about this matter of the reserve.  I know my knowledge of the subject is of very recent acquisition, and is largely the result of investigations made since I have been here this session.  I believe it to be a wise provision to require the banks to respect the reserve limitations.  The idea of the necessity for a reserve was drawn from the experience and observation of bankers long before the national-banking system was created.  The national act simply concreted that into a statute and made it a rule of law.

Now, I am going to make just one reference to what I think is another pernicious defect in the bill of the Senator from Rhode Island.  He provides that the interest on this emergency circulation—in the bill he calls it a tax—shall not be paid on the sum delivered by Treasury officials to the banks, but it shall be paid on the average monthly amount of such notes so issued and in circulation.

Mr. ALDRICH.  That is the language of the existing law.  Of course if the money is in circulation, it has been delivered to the banks.  If the Senator was right in his criticism, of course the language needs to be changed.

Mr. CLARKE of Arkansas.  The Senator’s knowledge of banking law is so much better than mine that I will have to be pretty well satisfied about a proposition before I would antagonize him.  But if he will look at the returns of the amount of tax paid on the normal circulation of national banks, he will see the volume is about $15,000,000 less than that delivered to the banks.

Mr. ALDRICH.  I think the Senator will find that the difference grows out of the deposits of lawful money to retire circulation.

Mr. CLARKE of Arkansas.  Here is the report of the reporting banks;  none of them are in liquidation, voluntary or otherwise.

Mr. ALDRICH.  Certainly;  it is my purpose that they should pay a tax on all the money delivered to them.

Mr. CLARKE of Arkansas.  That is not the meaning of the provision now in the bill.

Mr. ALDRICH.  I have no objection to the provision, if such is not already covered by the bill.

Mr. CLARKE of Arkansas.  If that is the purpose, it must be more plainly provided for.

Mr. ALDRICH.  We will see that it is in, if it is not in already.

Mr. CLARKE of Arkansas.  I think you will find there are on deposit to secure the circulation of national banks, $619,000,000 in round numbers.  The Comptroller delivered to the national banks depositing those bonds $611,000,000 of notes.  They had outstanding or in circulation $601,000,000.  They have practically $8,000,000 less than they have bonds on deposit with the Treasury authorizing them to take out circulation.  They took out $8,000,000 less.  The Comptroller delivered to them $8,000,000 less than the bonds on file with him warranted them in receiving, and this to save simply the one-half of 1 per cent tax, leaving $8,000,000 in the hands of the Treasury unissued.

Mr. ALDRICH.  I think that discrepancy grows out of the fact that some small banks which are required by law to deposit the minimum amount of United States bonds never take out any circulation at all.

Mr. CLARKE of Arkansas.  There are only three such, with an aggregate capital of $75,000.  Many have not taken out the authorized circulation because they thereby save the tax.  I would not think that, in view of this circumstance a very strong case was made out in favor of an emergency circulation.  Consider here the question of retiring currency.  I have a communication here of the Comptroller of the Currency showing that he had on file, on the 27th of February, applications to retire $39,438,000.  In January the banks retired $9,000,000;  in February they retired $8,898,500;  in March they have applications already to retire $8,999,500;  in April $8,407,000;  in May, $3,583,000;  and in June, $450,000.  These applications to retire are permitted in the order in which the applications are filed.

Mr. Tillman.  First come first served.

Mr. CLARKE of Arkansas.  First come first served.  It would not seem like there was any very great urgency about providing an emergency issue when they are retiring actual money in $40,000,000 bunches to save one-half of 1 per cent annual tax.

In the face of that sort of practical demonstration of belief on the part of the national banks themselves there would not seem to be a very overwhelming necessity for giving them permission to circulate $500,000,000 of emergency currency, at an interest cost of 6 per cent per annum, when they say they can not profitably use normal currency that the Government pays them about 1 per cent bonus for taking.

Mr. ALDRICH.  Mr. President—

The Vice-President.  Does the Senator from Arkansas yield to the Senator from Rhode Island ?

Mr. CLARKE of Arkansas.  Certainly.

Mr. ALDRICH.  I suppose the Senator from Arkansas understands the explanation of these large retirements now ?  There was an extraordinary issue of currency made under circumstances last fall which were very unusual.  There were fifty, sixty, or seventy million dollars added to the bank-note currency under pressure of the crisis.  There is now no use for that money, and the banks, of course, necessarily retire it.  That is the whole theory of the law.

Mr. CLARKE of Arkansas.  Instead of retiring their own money, why have they not returned to the vaults of the Treasury the Government money loaned to them without interest ?  Have they not retired their own issues for the purpose of saving the one-half of 1 per cent tax ?  Why do they not return to the vaults of the Treasury more than $200,000,000 of public money for which they pay no interest ?

Mr. ALDRICH.  That is an entirely different proposition.  One is a question of currency and the other is a question of reserves.

Mr. CLARKE of Arkansas.  The explanation given is that the national banks withdrew United States bonds which were held as security for public deposits and replaced them with railroad bonds, State bonds, and other bonds, under agreement with the Comptroller of the Currency, and took out additional circulation on the national bonds.  They had to pay a 2 per cent bonus for the right to use the non-official bonds—the State bonds and railroad bonds—and they wanted to get rid of paying that by retiring this money.  They would then only be compelled to pay the one-half of 1 per cent tax and would be relieved of the necessity of keeping the railroad bonds and State bonds on deposit to secure the national deposits.

It demonstrates the fact that we have money enough and that what we want done by legislation and what the demands of the present occasion require is that the money now in circulation shall be devoted to legitimate business purposes.  With that ascertained, I do not think there will be any necessity for emergency legislation.

Mr. NELSON.  Mr. President—

The VICE-PRESIDENT.  Does the Senator from Arkansas yield to the Senator from Minnesota ?

Mr. CLARKE of Arkansas.  Certainly.

Mr. NELSON.  As a practical question, does not this amount of Government deposits of $222,000,000 serve as an emergency currency ?

Mr. CLARKE of Arkansas.  Certainly.

Mr. NELSON.  Is there any good reason why the banks should not pay interest on that emergency currency as well as on the proposed currency provided for in this bill ?

Mr. CLARKE of Arkansas.  No good reason has ever occurred to me.  It may have occurred to the Senator from Rhode Island.

Mr. ALDRICH.  Mr. President—

The VICE-PRESIDENT.  Does the Senator from Arkansas yield to the Senator from Rhode Island ?

Mr. CLARKE of Arkansas.  Certainly.

Mr. ALDRICH.  Mr. President, two years ago, I think it was—possibly five years ago—I reported a bill from the Committee on Finance requiring banks to pay not more than 1½ per cent upon Government deposits.  The bill came into the Senate, and almost every lawyer in the Senate—I think the Senator from Arkansas [Mr. Clarke] was not then a Member of the body—almost every lawyer in the Senate opposed the bill.  I remember very well the arguments made by the then Senator from Wisconsin, Mr. Spooner, and the former Senator from Alabama, Mr. Morgan.  The claim then made was—and I shall take occasion to have that debate reprinted in the Record—that by taking interest on such Government deposits it entirely changed the nature of the transaction;  that we would thereby make it a loan and make the Government the general creditor of the banks, and that it was important from every standpoint that we should not change the relation between the banks and the Government.  Whether that contention was correct or not, I do not know.  In my judgment there is no good reason, unless it is a legal reason, why the banks should not pay interest on Government deposits.

Mr. CLARKE of Arkansas.  Mr. President, I have only to say to the Senator from Rhode Island that if he will prepare such a bill and bring it in here again—

Mr. Tillman.  With 3 per cent on it.

Mr. Clarke of Arkansas.  If the Senator from Rhode Island will bring it in just at the same rate, I think I may venture to say that there are some of us over here who have made a living practicing law who will not raise that objection.

Mr. Culberson.  Mr. President, I should like to remind the Senator from Arkansas that I myself introduced a bill to that effect, which has been pending before the Finance Committee since prior to the holiday recess.

Mr. Tillman.  At what rate of interest ?

Mr. Culberson.  Two, 4 and 6 per cent, regulated according to crop movement.

Mr. CLARKE of Arkansas.  I should be very much delighted to vote for the bill proposed by the Senator from Texas [Mr. Culberson], though as to the 6 per cent interest, I do not know whether or not that is reasonable, under all the circumstances;  the banks must have it at a rate that will enable them to use it as some profit to themselves.  But I should like the Senator from Rhode Island [Mr. Aldrich] to bring forward his interest provision that was defeated;  that ought to be regarded in parliamentary history as a very remarkable bill.  A bill favorably reported from the Finance Committee, and having the indorsement of the Senator from Rhode Island on such a meritorious basis as that, it seems to me, ought not to have been defeated, and I am amazed that it was defeated by the efforts of lawyers on the minority side.  There must have been some other reason for opposing its passage.  I am not familiar with any of its provisions.

Mr. Aldrich.  It was defeated by the Senators sitting upon the other side of this aisle.  If I might be permitted to use a phrase which perhaps is not exactly parliamentary, I would say it was defeated by a filibustering proceeding.

Mr. Tillman.  How long ago ?

Mr. ALDRICH.  Five years ago.

Mr. CLARKE of Arkansas.  I think we have learned something over here since then.

Mr. ALDRICH.  Several Senators who are within the sound of my voice remember very well how that bill was defeated.  It was talked to death.

Mr. CLARKE of Arkansas.  I venture to say, looking at the Senator from Texas, that he took no part in that.

Mr. ALDRICH.  I think he did not.

Mr. BAILEY.  The Senator from Texas was in favor of that bill.

Mr. ALDRICH.  The Senator from Texas made a speech in favor of the bill.

Mr. Tillman.  What Senators opposed it ?

Mr. ALDRICH.  I do not like to refer to Senators by name, but if the Senator will look up the record he will find who they were.  They were certainly not Republican Senators.

Mr. Nelson.  Mr. President—

The VICE-PRESIDENT.  Does the Senator from Arkansas yield to the Senator from Minnesota ?

Mr. Clarke of Arkansas.  With pleasure.

Mr. NELSON.  I should like to ask the Senator from Rhode Island  [Mr. Aldrich] if he does not recall the fact that during the consideration of the last financial bill here at the last session I offered an amendment to compel the banks to pay interest on Government deposits, and that he, among other Senators, strenuously opposed it ?

Mr. CLARKE of Arkansas.  Every Senator on this side of the Chamber voted for it.

Mr. Aldrich.  No;  the Senator is mistaken.  I think I made exactly the same statement I make now, that the lawyers of the Senate at that time believed that it ought not to be done for reasons of public policy and in consideration of the legal rights of the Government.  Now, if I can be convinced by the Senator from Arkansas [Mr. CLARKE] and the Senator from Minnesota [Mr. Nelson] that the lawyers who opposed that bill were wrong in their statement and that no public interest of a contract nature is involved, I shall certainly be glad, for one, to vote for a proposition to require the payment of interest upon Government deposits.

Mr. Nelson.  May I ask the Senator from Island another question ?

The Vice-President.  Does the Senator from Arkansas yield to the Senator from Minnesota for that purpose ?

Mr. Clarke of Arkansas.  Certainly.

Mr. Nelson.  What is the, difference between a Government deposit in a notional bank and the deposit of a national bank with a central reserve bank that justifies in one case the payment of 2 per cent interest and in the other case none ?  Is there any difference in the legal relation of the two deposits ?

Mr. ALDRICH.  Well, Mr. President, with all due respect to the Senator from Minnesota, there is absolutely no analogy between the two cases.  In the case of Government deposits, the former Senator from Wisconsin and the former Senator from Alabama both contended that by an unbroken line of decisions of the Supreme Court of the United States Government money in a national-bank depositary was money in the Treasury of the United States.

Mr. BEVERIDGE.  Of course.

Mr. ALDRICH.  And that to put it in the form of a loan would change the nature of the transaction.

Mr. McLaurin.  Mr. President—

The Vice-President.  Does the Senator from Arkansas yield to the Senator from Mississippi ?

Mr. CLARKE of Arkansas.  Certainly.

Mr. McLaurin.  Mr. President, I wish to say that I was one of those who opposed the bill introduced by the Senator from Rhode Island [Mr. Aldrich] of which mention has just been made.  I did not oppose it because it proposed to require the banks to pay interest, except that the banks were not required in that bill to pay as much interest as I think they ought to be required to pay the Government, inasmuch as it loans them the money.  I undertook to make an argument here against that bill.  I took the floor and talked some ten minutes, I reckon, when other Senators on both sides of the Chamber got in and spoke until within five minutes.  I believe it was, of 12 o’clock, when the Senator from Rhode Island suggested that the street cars would stop at 12 o’clock, and moved that the Senate adjourn.  I then stated that I wanted it understood that when the bill came before the Senate the next day I would have the floor, but the bill never did come up again, and I never did get an opportunity to present my objections to it.

Mr. Clarke of Arkansas.  Will the Senator explain why he opposed it ?

Mr. McLaurin.  No;  I will not explain, Mr. President, why I opposed that bill.  If another bill just like it shall be introduced, I will explain why I oppose that bill.

Mr. CLARKE of Arkansas.  Then the Senator is not in favor of another bill along the same line ?

Mr. McLaurin.  No, sir.  I will say at the proper time why I shall oppose such a bill if it shall hereafter be introduced.  The bill to which the Senator from Rhode Island referred is dead by limitation and there is no necessity for arguing about it;  but I will argue any other bill that comes up if my judgment is against the adoption of it.

Mr. CLARKE of Arkansas.  Mr. President, I did not intend to occupy more than ten minutes and if I had not been interrupted I do not think I should have occupied more than that time.  I do not intimate any dissatisfaction with these interruptions;  all have added to the interest of the occasion.  I simply wanted to say that I am opposed to any emergency financial legislation at this time, in view of the demand prevalent in the country for an investigation of stock-exchange conditions, and I do not think this bill or any legislation of this character should be enacted in advance of such investigation.

I had prepared a somewhat more extended statement of my views on the general question, but I do not feel able at this time to state them.  In deference to the minority of the Finance Committee, however, I thought that I would say why I am not going to vote for the bill which is proposed by the Senator from Texas as a substitute for the bill of the majority, and that I would take the liberty of calling attention to one or two defects that I thought were in that bill.

Mr. BAILEY.  Mr. President, I shall detain the Senate but a moment, and I only detain it at all for the purpose of saying to the Senator from Arkansas [Mr. Clarke] that he has not caught the purpose of the minority and does not understand, as it appears to me, the different principles upon which the minority substitute and the majority bill are constructed.  He complains against the minority substitute that it does not distribute the money amongst all the banks.  I call his attention to the fact that under the minority substitute the Secretary of the Treasury may not only place it in these banks which are now depositaries, but may designate banks ss depositaries for the special and single purpose of this bill.

I drew that deliberately so that if the Secretary of the Treasury wanted to put money in a particular locality where there was no Federal depositary he could make one;  and, in order to obviate the possibility that after placed Federal money in the banks the Government would assume some kind of Federal supervision or control over it.  I limited it to the banks designated as depositaries for this purpose, leaving untouched the general authority over the banks designated as depositaries for general and ordinary purposes.

The Senator from Arkansas also complains against my distribution of this money according to the population of the States. I must confess that to my mind that is a most singular complaint in view of what he afterwards said. I drew that limitation for the express purpose of making it impossible for the New York gamblers to obtain the money that the industrious people of Texas and Arkansas might need in the conduct of their legitimate occupations.

I recognize as well as any wan that the per capita basis is not an exact and scientific basis for the distribution of money. I perfectly understand that communities and States, the same as individuals, need money according to the volume of their business, and not according to the enumeration of their heads;  but, as it is impossible to measure the volume of business and comparatively easy to count the number of people, the world has universally accepted the per capita basis as correct in these matters.

The money that is proposed to be deposited under the substitute belongs to the people of the United States. It does not belong to them according to their wealth, according to their industry, or according to their business. It belongs to them man and man alike, because their labor and their property in proportion must pay the taxes that would redeem it, and their lives and their safety must defend the government which issues it. Therefore, when I came to place the people’s money among the people, I placed it according to their right of ownership in it, and that right of ownership is a per capita, and not a business one.

Mr. CLARKE of Arkansas. May I ask the Senator a question ?

The Presiding Officer (Mr. Perkins in the chair). Does the Senator from Texas yield to the Senator from Arkansas ?

Mr. BAILEY. Certainly.

Mr. CLARKE of Arkansas. I have no complaint to make about the statement as to who owns the money ultimately, but it encounters two limitations. You assign to some States more than they could avail themselves of if they invested the entire surplus and capital of every national bank in the State. For instance, take the State of Arkansas. Under a per capita distribution we would be entitled to some $10,000,000, but the entire surplus and capital of the national banks of the State is only $4,999,000.

Mr. BAILEY. The substitute does not limit this as the majority bill does, according to capital and surplus.

Mr. CLARKE of Arkansas. I know, but that would be their capacity to acquire it. There are two limitations—one of population and the other of ability. Where would they get the money ?  They have not got banking capital and surplus, to say nothing of the circulation that is out against their capital stock, that would entitle them to acquire half of it.

Mr. BAILEY. The Senator is mistaken. I do not limit the right to deposit according to the capital of the bank.

Mr. CLARKE of Arkansas. Certainly;  but according to the capacity they have to enjoy the privileges which you give to them.

Mr. BAILEY. Not at all. The bank with only $50,000 capital might, under the substitute bill, secure $100,000 deposits.

Mr. CLARKE of Arkansas. Of course, if they use deposits to acquire circulation.

Mr. BAILEY. Not at all. It is just a question of their ability to give security. That is all.

Mr. CLARKE of Arkansas. But their ability to give security, I presume, bears some relation to the amount of money they have invested in the business, which is the capital and surplus.

Mr. BAILEY. That is ordinarily true, Mr. President, but it frequently happens that State, national, and other banks, when they need security and do not have it of their own, borrow it from individuals and other institutions In other words, I have no doubt a bank in Arkansas, with ample security, could borrow from its correspondents in other places, who might have them, any kind of bonds that were needed to secure a Government deposit under the present law. However, if the perople of Arkansas have only a certain amount of capital and they have no security to offer, I think you would not expect them to get the money. But the substitute does not limit it as the committee bill does. The bill requires that the banks shall have their capital paid up;  that they shall have a surplus, and then that they shall have taken out 50 per cent of their circulation.

The Senator from Arkansas must understand that another and a most fundamental difference between the bill and the substitute is that, under the majority bill, if the banks did not want to relieve the panic the panic would not be relieved. If the banks were not willing to take out this circulation the country would be left to suffer for the want of it;  but, under the substitute as I have drawn it, an officer of the Government, with a sworn duty to perform and a high obligation to the people, judges whether or not there shall be an increase in the currency;  and if there is necessity, under his oath of office, he relieves it. Under my substitute he is not compelled to wait, as he is under the majority bill, until the banks apply. The substitute compels him to make the deposit.

Mr. CLARKE of Arkansas. Deposit without security ?

Mr. BAILEY. No, sir;  with security.

Mr. CLARKE of Arkansas. Suppose the bank has not got it ?

Mr. Bailey. Then the bank simply can not take the deposit.

Mr. CLARKE of Arkansas.  Suppose the bank is not willing to pledge its credit and to change the character of its assets ?

Mr. BAILEY.  Then, Mr. President, there is no way to compel that bank to do it, except if it is already a depositary you simply strip it of its privilege as a depositary not only then, but thereafter.

Mr. Clarke of Arkansas.  How would that help the local situation financially ?

Mr. BAILEY.  That would help it very materially in this way.  The Senator from Arkansas said in the Senate a few moments ago that it was such a privilege that only a few hundred banks—fourteen hundred, I believe, out of 6,000—had been so designated.  Now that fourteen hundred would not be willing to surrender their rights as depositaries because they could not comply with the law.  It is worth something to a bank to write on its window—I suppose it is, because every one entitled to do so writes it on its window—that it is a depositary of the United States.  Assuming that that privilege is worth something, even for the purpose of advertising, they would not have it understood that they were compelled to surrender it because they were not equipped to give the security.

I have no difficulty about that.  I have no doubt in the world that if this bill should become a law, or if my substitute, which I think is much better, should become a law, the banks in the South and West would immediately secure bonds as fast as those bonds were issued by municipalities, States, and counties.  In other words, if a bank already in existence at the town of Gainesville, in Texas, were to find that city issuing its bonds for any municipal purpose, they would not allow those bonds to be sold, as they now are and as they have been for many years, to the East, but they would take a part of their capital or surplus, or a part of each, if necessary, and they would invest it in those bonds.  They would lay them aside in their vaults to provide for precisely these emergencies when they should arise, and in twenty years—and mark you, Mr. President, we are not legislating for a day;  we are legislating for all the days to come—and in twenty years every bank in the South would be equipped with a fair amount of these bonds.

Mr. CLARKE of Arkansas.  Would not that depend—

The VICE-PRESIDENT.  Does the Senator from Texas yield to the Senator from Arkansas ?

Mr. BAILEY.  Certainly.

Mr. CLARKE of Arkansas.  Would not that depend upon the rate of interest that money could earn in the neighborhood ?

Mr. BAILEY.  In some measure it would, and yet it would not be determined entirely by that for this reason:  Here is a bank—

Mr. CLARKE of Arkansas.  Just one other question, so that the Senator may understand me.

Mr. BAILEY.  Certainly.

Mr. CLARKE of Arkansas.  Do you think a bank would carry, for instance, a 4 per cent bond—you can float in the East a 4 per cent bond if it is secured, but it will not float in Arkansas, and I do not know what would be a fair rate in Texas—but assuming the rate to be 4 per cent or 5 per cent, do you suppose a bank would carry such a bond for nine or ten years in order to avoid a panic that might happen during the tenth year ?  Panics do not come often enough, emergencies do not arise often enough to justify the banks in lending money out for half or two-thirds of what they could get from private customers.

Mr. BAILEY.  If a bank could know that a panic was not coming for ten years, of course it would not do so;  it would wait until the year the panic was to come, and then buy the bonds;  but banks can never calculate on that.  They can never tell certainly when these disturbances will occur.  Like the recent one, they come unexpectedly, and a prudent bank manager—

Mr. CLARKE of Arkansas.  Mr. President—

The VICE-PRESIDENT.  Does the Senator from Texas yield to the Senator from Arkansas ?

Mr. BAILEY.  Certainly.

Mr. Clarke of Arkansas.  Suppose the panic came about as this one did.  There was no local want of money.  There were ample funds in the South and West to conduct all the business that the people there were engaged in, and they simply wanted to get their money that was impounded somewhere else.  Then, why would they apply for money to relieve the situation caused by the misconduct of somebody else, or due to the disability of somebody else ?

Mr. BAILEY.  If New York’s misconduct affected nobody but New York I would have precious little interest in it;  but when it affects the remainder of the country I want to provide that the rest of the country may protect itself against the misconduct of New York.  If the gamblers simply gambled with and distressed each other we could afford to let them gamble on to their hearts’ content.  But I do not care what produces a panic—gambling or what else—when a panic comes everybody suffers;  and I should like to relieve the innocent people even from the consequences of the acts of the guilty stock gamblers.

Mr. ALDRICH.  Mr. President—

Mr. BAILEY.  Let me finish for a moment, before I am diverted from that point.  Ordinarily, of course, a bank would not take part of its capital and invest it in 5 per cent bonds when it could realize 8 per cent on commercial loans.  But when you reflect that the 5 per cent bond is an absolute security and the 8 per cent loan not only involves the value of the use of the money, but involves the chance of loss and the risk of delay and cost in collecting it, a 5 per cent loan which is absolutely secure is better than an 8 per cent commercial loan, and when you add to the absolute security of the 5 per cent loan the privilege of being converted into money on an occasion when money is much needed, I have no hesitation in saying that any wise and prudent bank manager would take a part of his capital and invest it in these bonds, though they bear a lower rate of interest than commercial loans.

Mr. President, the banks of the United States now return to their stockholders a larger per cent than any other legitimate and safe business—more than 12 per cent per annum.  Surely, if they are managed by men of common prudence, they would be willing to reduce their dividends a little in order to make their capital absolutely secure, and while this may not make it absolutely secure, it makes it infinitely more secure than it is to-day.

Now, to return to the other matter—

Mr. Tillman.  Mr. President, will the Senator allow me to interrupt him a moment ?

The VICE-PRESIDENT.  Does the Senator from Texas yield to the Senator from South Carolina ?

Mr. BAILEY.  Certainly.

Mr. Tillman.  I want to suggest—the thought came into my mind while the discussion about the per capita issue of emergency money was being bandied back and forth between the Senator from Texas and the Senator from Arkansas—that what the Senator from Arkansas complained of or suggested as a criticism was that Arkansas would never be able to take out the amount of money which the per capita basis would permit, and that unless there is some limitation provided New York might be enabled to gobble up the whole amount, and we do not want any more of that kind of thing if we can help ourselves.

Mr. BAILEY.  And knowing New York’s disposition, I know she would, to use the Senator’s expressive phrase, "gobble it up," and I have therefore carefully provided that she can not do so.

Mr. ALDRICH.  Will the Senator allow me to say a word there ?

The VICE-PRESIDENT.  Does the Senator from Texas yield to the Senator from Rhode Island ?

Mr. BAILEY.  Certainly.

Mr. ALDRICH.  I merely want to say a word in answer to a suggestion of the Senator from Arkansas, who always looks upon these matters in a practical way.  The Senator asked, Why should the banks buy these bonds or keep them ?  The Senator realizes that the banks must keep reserves.  They keep a part of their reserves now in New York, and draw 2 per cent interest upon them.  The rest of their reserve does not pay them any interest at all.  The suggestion of the Senator from Alabama [Mr. Johnston] is that bonds shall be held as a part of the banks’ reserves—that is, to a limited extent.  The banks would then be in this condition:  Instead of their reserves paying them nothing at all, or 2 per cent when deposited in New York, they would have part of their reserves under their own control all he time, paying them 4 or 5 per cent interest, with the right at any moment to obtain money upon them instead of taking the chance of not getting their money from the New York reserve banks.

Mr. Clarke of Arkansas.  The Senator is mistaken when he says "with the right at any moment to obtain money upon them."  It seems to me it could only be had when the Secretary of the Treasury decided the conditions to be such that this emergency currency might be used—

Mr. ALDRICH.  And undoubtedly any Secretary of the Treasury would so decide—

Mr. CLARKE of Arkansas.  Any time they could make any money on those 4 per cent bonds.

Mr. ALDRICH.  Any time that the conditions in a locality demanded its use.  No bank would apply unless there was good reason for it.

Mr. CLARKE of Arkansas.  I will submit the proposition that outside of the city of New York there was no disarrangement of the business conditions or banking conditions that made it necessary to forecast any such outcome.

Mr. ALDRICH.  There was not a bank in the United States that was not crippled or did not suspend payment, with very few exceptions.  Whether the recent panic came from the conditions in New York I do not know, but I do know that when there is an absolute suspension in New York at any time it means a suspension of the business of the whole country.  It is inevitable.

Mr. BAILEY.  Mr. President, it is such an easy thing to blame our misfortunes and lay our shortcomings on somebody else that it is not surprising that the banks in the country which could not pay said they could not pay their customers because their New York correspondents would not pay them.  I know that many of the country banks would not pay cash over their counters.  In some of the cities of our great State they limited cash withdrawals to $20 a day.

Mr. McLaurin.  Mr. President—

The VICE-PRESIDENT.  Does the Senator from Texas yield to the Senator from Mississippi ?

Mr. BAILEY.  Certainly.

Mr. McLaurin.  In our little town we have two small banks, and there was not a day that a man could not go there with a check and get every dollar that his checks called for.

Mr. BAILEY.  And he could carry away in his pockets all the dollars he obtained, too.  [Laughter.]

Mr. McLAURIN.  But the banks could meet all their obligations.

Mr. BAILEY.  Mr. President, I withdraw that remark, because the Senator from Mississippi lives in one of the most delightful communities in this world and among the best and bravest people.  I was born near them.  They do not love money half so well as they love truth and justice.  It may be difficult to make money among them, but the money is safe after you have made it.  You can lay it down and when you come back you can find it exactly where you left it.  But it is true that Brandon, Miss., is not exactly a type of the busy and strenuous commercial life of the country.  I know in our cities they limited men to $20 a day, and we almost reached the point of paraphrasing the Lord’s prayer and saying to our banker, "Give us this day our daily allowance;"  and we did not always get it.  They were solvent.  They all stood that storm.  But they did not have as much money as their depositors wanted, and I am inclined to think that the bankers throughout the country acted with great wisdom and averted a very serious disaster by looking their customers in their faces and telling them they could not and would not pay their deposit accounts.

I say that for this reason:  If the bankers paid their depositors, then they must have collected from the men who owed them, and with the depositor taking out at one window and the banker calling on his debtor to pay at the other window, we would have witnessed a ruinous sacrifice of property.  The banks could not pay their depositors unless their debtors paid them, and I think it was wise on their part that they did not force a liquidation at that time.

But I did not rise to discuss that.  I want to impress upon the Senator from Arkansas again that the difference between the bill of the committee and the substitute of the minority is as wide as the poles are apart.  The committee not only allows the banks to issue the money, but allows them to determine when and how much money shall be issued.

Mr. CLARKE of Arkansas.  The Senator from Texas seems to be calling my attention to that.  I will say to him that under your bill the Secretary of the Treasury might on his own initiative find some locality, and say "I think you ought to have $20,000 in your bank," and the banker would say "I have only bonds enough here," or "I do not choose to use bonds enough to issue more than $10,000."  Have you any provision in your bill to make him take out $20,000 ?

Mr. BAILEY.  I have not, and he could not be made to take more than he could secure.  If he could secure but $10,000----

Mr. Clarke of Arkansas.  Suppose he would not ?

Mr. BAILEY.  I would rely upon a sensible Secretary of the Treasury to leave the $10,000 there to serve the uses and conveniences of that community.

Mr. President, we must lodge somewhere the power to determine when this money can be issued.  You could not, to save your life, devise an automatic arrangement that would work itself.  The Senator from Arkansas may take it and study it through the night and into the morning, and he can not draw a bill which does not leave it to somebody to initiate the issuance of this money.  The Senator from Rhode Island leaves it to the banks to initiate it, and then to issue it upon the approval of the Secretary of the Treasury.  I recognize that the banks engaged in a private business.  Their first duty is to their stockholders.  While they are citizens, and many of them patriotic and intelligent citizens—I will even go so far as to say that an overwhelming majority of them are intelligent and patriotic citizens—yet, sir, I will never commit to any private interest the power to issue the money of the United States and to determine when or how much of it shall be issued.

Rejecting, therefore, the theory of the bill of the committee, which, I grant you, is only an application of the present banking law, I propose to commit, and I was forced to commit to somebody, this great power to an officer of this Government, bound by a solemn oath and engaged by a high sense of duty to do whatever is best for the people of these United States.  That, Mr. President, is my reason for conferring this discretion on the Secretary of the Treasury instead of the banks.

Mr. CLAY.  With the permission of the Senator, there is only one trouble I see about the Senator’s substitute.  I am going to vote for it, but there is one trouble about it.  I would not agree to vote for any permanent system of finance that provided that the Government should deposit money in banks to be loaned to the people.

Mr. BAILEY.  You mean for the ordinary supply of currency ?

Mr. CLAY.  I would not.

Mr. BAILEY.  Nor would I.

Mr. CLAY.  I understand this simply to be an emergency currency, and in all probability the money issued under the system provided by the majority or the minority on account of the rate of interest fixed will return to the Treasury, except when an emergency shall arise.  Then I do not understand the Senator from Texas to be in favor of any permanent system that would simply issue notes and deposit them in the banks and allow the banks to furnish the money to the people.

Mr. BAILEY.  I would never agree to use the banks as a permanent and ordinary method of putting money in circulation.  That is neither desirable nor necessary.  The Government can provide from year to year the proper increase of the currency by the issuance of its promissory notes and the payment of its current obligations in those notes.

But, Mr. President, I beg pardon of the Senator from Maine, who has previously given notice, for taking his time, and have a word more.

Mr. FRYE.  The Senator from Maine loves to hear the Senator from Texas talk.

Mr. BAILEY.  I thank you.  I wanted the Senator from Arkansas to see the matter as it appears to us.  I am satisfied the Senator would not turn both the issue of money and the determination as to its volume and as to the time of its issue over to the banks rather than to an officer of the Government.

Mr. CLARKE of Arkansas.  I wish the Senator would indulge me one moment more.

Mr. BAILEY.  Certainly.

Mr. CLARKE of Arkansas.  If I thought that question was involved in it, or was decisive of any question, of course I would vote for many objectionable features rather than to commit myself to the proposition that national banks ought to have all control over the volume or the right to issue money;  but, as I understand these two bills, there is no substantial difference on that particular point.  The Senator is quite right, and he pays me a compliment, which I appreciate, when he says that I do not intend to permit national banks to control the volume of money or to have any definite voice in saying what that volume shall be.

Mr. BAILEY.  But when the Senator votes against the substitute which we offer he does vote that as between the two systems he prefers the other.

Mr. CLARKE of Arkansas.  Not at all.  Now, what do you base that on ?

Mr. BAILEY.  Because a substitute is simply one proposition against the other.  If you vote against the substitute, you vote that you prefer the original proposition over the substitute.  That is the parliamentary effect of it.

Mr. CLARKE of Arkansas.  That may be, according to the Senator’s judgment.

Mr. BAILEY.  And that is what we—

Mr. CLARKE of Arkansas.  But I am opposed to both propositions.

Mr. BAILEY.  Then the Senator might, if the substitute should be adopted as against the original measure, vote against the substitute on its passage.  I have done that in my time.  Believing that a substitute was better than a bill for which it was offered, I have supported the substitute, announcing that, though the substitute was better than the original bill, it was still not as good as it ought to be, and I reserved the right to vote against it if it should become the main proposition.

Mr. CLARKE of Arkansas.  If there were any reason for announcing my adhesion to an abstract principle, I think I would do that myself.  I see so definitely, or I think I do at least, that there should not be any such legislation as this, that I do not propose to vote for it partially.  I say it is all out of place in advance of an investigation of that question.  If a naked proposition involving the choice between the national banks issuing the circulating medium or the United States doing it in the form of Treasury notes, count me, without any further controversy on that proposition, in favor of the Treasury note.

Mr. BAILEY.  I want right there to show the Senator from Arkansas how I have endeavored to take into consideration the views of gentlemen like him.  It was said, and I believe truthfully said, that if you do not provide for the geographical distribution of this money, New York, occupying the highest financial eminence, would be the first to feel the breath of the coming storm, and it would take out the entire currency.

Mr. CLARKE of Arkansas.  You do not understand me as advocating that ?

Mr. BAILEY.  No.  I believe that if New York got the whole of this money supply, the balance of the country would only get what New York might graciously choose to let it have;  and remembering that New York in the recent stringency did not choose to let them have what belonged to them, I was unwilling to risk New York with what belonged to the rest of the country.  Therefore I deliberately provided that it should be distributed among the States according to population.  I also provided that an emergency might exist in one State without existing in all the States.

In other words, when the people of Arkansas or of Texas began to move the cotton crop, there might be such a business condition there as would warrant the Secretary of the Treasury in making deposits with them without feeling it incumbent upon him to make deposits in New York or Montana or California.

Not only so, Mr. President, but I then provided—and I think I have carefully provided—that the Secretary of the Treasury shall never under any circumstances deposit more of this emergency fund in any State than its pro rata share of it.  It can never happen that New York, with her one-tenth of our population, can get more than one-tenth of this money, and therefore New York could not use Texas’s part or Arkansas’s part to gamble with.

The Senator from Arkansas complains that one State might not need its share and might not want it, and that I did not allow it then to be given to the States that did.  The reason I would not allow that, Mr. President, was this:  No State can tell within a day or a week or a month whether it will need emergency notes or not.  If Texas did not promptly take out her share, and you then permit New York to take it out, it might happen that at the end of thirty days Texas would find herself in need of it, and as the limit would have been reached, Texas’s money would be in New York and Texas would be left stripped and helpless in a great emergency.  It was to prevent that condition that I deliberately provided in the substitute that the money belonging to one State should never be assigned to any other State.  I not only protected Texas in her right to get her share, but I have rendered it impossible for New York to gamble upon the emergency fund provided for the other States.

Mr. President, it is easy to criticise, but it is difficult to construct.  I claim no special excellence in that line.  I have no pride of authorship.  If gentlemen will draft a substitute that affirms the sovereign power of the Republic to issue the money of the people and denies that power to the banks, I will surrender my preference as to details and support it.  I do not forget that it is impossible to apply a principle except according to some detail, and I do not forget that good details are essential to the wise application of sound principles;  but if they will give me an agreement on the principle, I will yield to them on the details.  What I desire above all else is to see the Democratic party record itself here and now as unchangeably in favor of the principle of Government money as against bank money.


Mr. FRYE.  The currency fever seems on.  Two Senators have already spoken to me, who desire to be heard for a short while, ten minutes or so.  I am inclined to accommodate them, but I should like to have the Senate accommodate me.  Nobody has given notice of any speech for to-morrow morning immediately after the routine business.  I ask unanimous consent that the joint resolution (S.R. 40) to provide for the transportation by sea of material and equipment for use in the construction of the Panama Canal may receive consideration to-morrow after the routine business.  Then I will yield the floor, and the currency debate can go on.

The VICE-PRESIDENT.  The Senator from Maine asks that Senate joint resolution No. 40 be taken up for consideration immediately after the routine morning business to-morrow.  Is there objection ?  The Chair hears none, and it is so ordered.

Mr. FRYE.  I am obliged to the Senate.

The Senate, as in Committee of the Whole, resumed the consideration of the bill (S. 3023) to amend the national banking laws.


Mr. Newlands.  I should like the attention of the Senator from Rhode Island whilst I renew the question which I asked him during the argument of the Senator from Arkansas [Mr. Clarke], and that is whether, in addition to the requirement which he has already acquiesced in—that the banks should keep in their own vaults either the whole or a very much larger proportion of the reserves now required by law—he would be willing to add the requirement that no bank shall be permitted to loan out its depositors’ money in excess of seven times the amount of its capital ?  The purpose of that would be to secure for the depositors the protection of adequate capital amounting to about 15 per cent of their bank loans.

The Senator from Rhode Island realizes that the depositors’ moneys are loaned out, and the loans about equal the deposits, and that the security of the depositors is the reserve required by law and the capital of the banks.

The Senator will also bear in mind that there is no rule imposed by the present banking act regarding the relation of capital either to loans or deposits, and that whilst the average banking capital of the national banks and the average banking capital of the nation is entirely adequate, being about 30 per cent, I believe, of the deposits, yet as a matter of fact a great many banks, both national and State, are far below that requirement.  I will ask the Senator whether he would favor an additional protection to the depositors in that line ?

Mr. ALDRICH.  Mr. President, the bank system of New York prior to the war, which I imagine perhaps was the best of the American systems, had a limitation of this character.  No bank should loan more than two and a half times its capital.  As I stated in the remarks which I submitted to the Senate some time ago, twenty years ago, in 1887, the proportion between capital and loans in this country was as 1 to 2.61, being a little in excess of the New York limit.  In 1907 the proportion was as 1 to 5.21, showing an increase in proportion to capital of almost double in the last twenty years.

I see no objection to fixing a limit.  I think myself that the troubles we have had have grown out of overexpansion of credit.  But I never would fix it as high as 1 to 7, because it would be greatly in excess of what is shown to be safe banking by the experience of the world.  I do not, perhaps, think it is necessary;  certainly not necessary in this bill.  As I have already stated on several occasions, this bill does not pretends to be a panacea for all financial ills, and we certainly can not at this time undertake to dispose of them all.  I think a limitation of loans in proportion to capital is a wise one, but I certainly would not fix the limit at 1 to 7.

Mr. NEWLANDS.  As I understand, then, the Senator would fix it at 1 to 5 ?

Mr. ALDRICH.  I would not say.  I would not want to offhand what the proportion should be.  I have stated the fact that there has been a growth in this country from 1 to 2.61 to 1 to 5.21—double in twenty years.

Mr. NEWLANDS.  The only difference between the Senator and myself is that he would require greater caution in this particular than I suggest.  I quite agree with the Senator from Rhode Island that the relation ought to be about 1 to 5.  I stated 1 to 7 in order to liberalize the suggestion in order to prevent any possible objection.

Now, let me state to the Senator, as he well knows, there is no requirement in the national banking act that the capital shall bear any fixed relation to the loans, nor is there, I believe, in the State banking acts, and the result is that we have such conditions as these:  That the Knickerbocker Trust Company, of New York, with a capital of only $1,000,000, was able to make loans to the amount of $50,000,000.  So the proportion of capital to loans was not that of 1 to 5, as the Senator from Rhode Island suggests, but was the relation of 1 to 50.

Now, when that was called to my attention it was accompanied with the suggestion that it was simply a State bank.  I then looked to the national banking act to see whether there was any provision there that would prevent such reckless banking, and I found there was none;  that while the depositor is partly protected by requiring the bank to keep a certain proportion of the deposits in its vaults in order to respond to checks, there is no provision at all as to the amount of invested capital that shall be maintained as security for those deposits.  And it is perfectly possible under the national banking act to-day to have a bank conducting a business of the enormous proportions of the Knickerbocker Trust Company, involving fifty millions of deposits and $50,000,000 of loans, upon a capital of only $1,000,000.  Safe banking requires that depositors should have two sources of protection, one the protection of an ample reserve, the other the protection of an ample capital.  The least reserve required should be an average of 20 per cent.  The least proportion of capital should be 20 per cent also.  Then you have safe banking, because the depositors of the bank have not only the security of the loans in which their moneys are invested, but they also have in addition the 20 per cent reserve in cash in the bank and the 20 per cent in capital put in by the stockholders and invested in marketable securities.

The best mode of securing depositors is not by a guaranty fund contributed by the banks or by a guaranty of the Government, but by providing for a sufficient reserve and sufficient capital.  If we have in reserve and in capital a security of 40 per cent of the deposits, we will have a safe banking system.


Now, Mr. President, while I am upon this subject, I wish to add that it is utterly impossible to have a safe banking system in this country as long as we have two systems differing as to the security offered to their depositors.  We have in this country two systems, the national-bank system and the State-bank system, both about equal in capitalization, both about equal in deposits;  and yet under State banking laws there are not sufficient requirements as to reserves and there are not sufficient requirements as to capital.  So at any time, however you may guard the national banks by proper provisions regarding reserve and capital and their relation to deposits and loans, the entire system may be broken down by inadequate reserves and inadequate capital upon the part of the State banks.  We all know that if the State banking system of the country is involved in difficulty it involves the national banking system also, and that you can not possibly inaugurate a system that will successfully work in preventing panics if it is confined to one kind of banks alone.

If that be so, it seems to me that the very next reform which should suggest itself to the Senator from Rhode Island is the .....

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