There was no lack of confidence in the country and nothing which indicated panic conditions, but the demands of the banks of the West for the shipment of currency on deposit with reserve agents resulted in a panic upon the Stock Exchange of New York, which became a grave menace to the business interests of the entire country, by curtailing ordinary credits to legitimate business and commercial enterprises to such an extent as would have resulted in great damage had not the Secretary of the Treasury come to the relief of the money market and checked the rapidly increasing stringency.

While the exchange business of the interior banks always will necessitate large deposit balances in New York and other reserve cities, and higher rates of interest will attract idle funds to the money centers, Mr. Dawes suggested that public policy demanded that the banks of the country should be required to keep a larger proportion of their reserve at home in their own vaults for the protection of the interests of their depositors in times of stress.

By increasing the restrictions upon the right of banks to count deposits with reserve agents as cash, he said, a firmer and safer foundation would be built under the deposit credits of the country, and in times of liquidation the greater strength of the banks would more than compensate for the loss of the small amount of interest on a portion of their bank balances.

Mr. Dawes therefore recommended that the law be so amended as to permit only one-fifth, instead of three-fifths, of the fifteen per cent. reserve then required to be kept by banks not reserve agents, to consist of balances due from reserve agents, and that the provision of law which permitted banks in reserve cities to keep one-half of their lawful money reserve with correspondent banks in central reserve cities be repealed, thus requiring them to keep on hand at all times in their own vaults the twenty-five per cent. reserve then required by law to be maintained.

Mr. Dawes renewed the recommendation that had been so frequently presented by his predecessors for a change in the method of compensating national bank examiners, from a fee basis to a salary allowance. The fee system, he contended, encouraged superficiality in examinations and interfered with a proper appor

tionment of the examiner's time among the different banks on his list for examination.

Amendments to the Banking Laws

While only two amendments to the national banking laws were enacted during Mr. Dawes' administration as Comptroller, one of these had a very important bearing upon the growth of the national banking system.

The Act of March 14, 1900, authorized the formation of banks with a minimum capital of twenty-five thousand dollars, in places the population of which did not exceed three thousand inhabitants. Since this enactment on June 30, 1922, 4,323 banks, with a capital each of less than fifty thousand dollars, have been added to the system.

The same Act also increased the maximum circulation that banks might issue to an amount equal to the par value of the bonds deposited as security therefor, and increased the amount of bonds that could be received for circulation to an amount equal to the paid-in capital stock of the bank.

Before the adoption of this amendment to the law, circulation was limited to ninety per cent. of the current market value of the bonds deposited, not exceeding par, and the total issue of circulation to any bank was restricted to ninety per centum of the paid-in capital of the association.

The issue of circulating notes of the denomination of five dollars was restricted by this Act to an amount not exceeding onethird of the outstanding circulation of each bank, and so much of the Act approved July 12, 1882, as prohibited any national bank from increasing its circulation within six months after the circulation had been reduced, was repealed, thus adding an element of flexibility to the currency issues.

This Act also authorized the Secretary of the Treasury to receive United States notes on deposit, without interest, from any national banking association, in sums of not less than ten thousand dollars and to issue certificates therefor in denominations of not less than five thousand dollars. Such certificates were authorized to be counted as lawful money reserve and to be accepted for

Clearing House balances at the places where the deposits therefor were made.

In anticipation of the passage of this Act, and while it was still pending before Congress, approximately one thousand applications for authority to organize national banks with a capital of less than fifty thousand dollars were filed with the Comptroller of the Currency, showing the popularity of this measure, as affording national banking facilities to small communities, and between the date of the passage of the Act and October 31, 1900, the close of the last report year of Mr. Dawes' administration, three hundred and eighty-two banks of this class were chartered.