individual trust holdings easily exceed $1,100,000,000 and Chicago trust companies hold in excess of $500,000,000 of such funds.

Another remarkable fact is the high standard of safety maintained in handling estate funds and individual trusts. Since 1907 there is no record of the loss of a single dollar of trust funds conveyed to the custody of trust companies: and court records show that in only three States have beneficiaries under wills or trust agreements, where trust companies have been appointed as trustees, executors or administrators, experienced losses. This covers the entire history of the growth of trust companies in the United States prior to and since the year of 1907. Or the other hand, the criminal and civil courts reveal an increasing volume of losses incurred through the appointment of individual trustees, executors and administrators. Such losses are either due to mismanagement, speculation, defalcation or incompetency.

WHY "CUMULATIVE VOTING" BILLS SHOULD BE DEFEATED

ILLS have been introduced in both

B branches of Congress providing for

cumulative voting by stockholders in the election of directors of National banks. A similar bill is pending in the New York Legislature to apply to State banks and trust companies. With the elaborate supervision of National banks and the excellent system of control which has been established in New York, it would seem that cumulative voting will be a superfluous provision. Ample opportunity is offered at the present time for stockholders of National and State banks and trust companies to inform themselves upon all matters if they will take the trouble to do so. Many stockholders will not understand what the cumulative voting provision means, but an outsider with questionable motives will find it a ready tool.

Banking corporations, indeed, appear to be conspicuous instances of institutions where no need for such alleged protection of minority shareholders exists. The Comptroller and State Banking Commissioners are constantly making examinations. The business enterprises of banks and trust companies are within a narrow field carefully prescribed by law. Infractions are promptly rebuked and criminal penalties are provided. The Government, even more than the minority stockholders, has a duty to perform in keeping banking operations within due bounds of legality and conservatism. A change of directors cannot involve any genuine change of policy, such as might result in the case of a business corporation, because of the narrow field of operations and the settled principles of sound banking. About all that a new directorate could do would be to change certain officers, bring in some new accounts, and probably lose some old ones! A minority director or directors could do even less, but would provoke friction and hard feeling, to no useful end.

Banks live and thrive on good feeling within and without. Customers would shun an institution where internal dissensions were known to prevail. So the conclusion seems to be inevitable that bank stockholders should vote on the majority basis, without cumulative voting or other special provision for the minority. By all means let all stockholders take a far greater interest in their institution. But let that institution present a solid and united front to its public. The interest of all stockholders is to have their bank grow and prosper. It will not prosper if its board contains factional elements elected in a factional fight.

sheep. Any formulated argument is accepted by a great many people unable to understand statistics and formulate arguments for themselves. It is on such occasions that the cumulative voting provision becomes an effective weapon of attack. By banding together a minority and voting cumulatively, the adventurers are able to get perhaps a quarter or a fifth of the board elected in their favor and from among their nominees. This frequently serves to exacerbate an already tense situation. A discordant board with one or two or three kickers upon it spells inaction or futile action. Under such circumstances the minority is not bettered by obtaining representation, but on the whole is seriously hurt. On the other hand, in serene times the minority is ready and willing to vote for the majority slate and better themselves more by so doing than by presenting opposition candidates.

The only situation in which cumulative voting is at all desirable appears to be where the majority is abusing its privileges and where the presence on the board of a single critical director might tend to conservatism in the management.

If people will stop to think they will remember that the United States is governed by the majority rule, and that (except in one or two States) the minority has to submit to the expressed will of the majority. The minority is not represented, even where election is by a plurality of votes. Government by the highest number of votes is a fundamental of democracy, and any attempt to give the minority an undue representation is a departure from this democratic principle. A stockholder always has a right to sell his shares or to buy more shares, and he always has the right to appear at meetings and provoke full discussion of affairswhich latter right he uses altogether too infrequently.

COUNTRY NATIONAL BANKS

SEEK STATE CHARTERS

10 development in connection with the Noperation of the Federal Reserve system

has attracted so much attention and caused so much discussion as the increasing tendency on the part of country member banks to give up their Federal charters and reorganize as either State banks or trust companies. It is furthermore regarded as significant that during 1915 twelve new State banks or trust companies were organized to every one new National bank. This ratio may not be much

larger than in the past, but it creates some doubt as to the wisdom of the authors of the Federal Reserve Act in attempting to make Federal charters more attractive than those issued by the States. During the past few months the number of National banks which have either liquidated in order to reorganize as State banks or trust companies, and which have been merged with other National banks, has exceeded the number of new applications for Federal charters. Doubtless this movement is giving the Federal Reserve Board serious concern, especially when four National banks in New York State recently announced on practically the same day that they would leave the National for the State system. Thus far these conversions have been almost entirely confined to country banks.

The discontent, on the part of country member banks, with the operation of the Federal Reserve system is not hard to diagnose. It grows largely out of the establishment of the intra-district collection system based on immediate credit and debit of checks; the fact that under this collection system the country banks are deprived of a considerable portion of their earnings, based on the practice of charging exchange on remitting for items drawn upon them. A second important cause for opposition is the claim that no compensating benefits are obtained for impounding their subscriptions to capital stock of the Federal Reserve banks and transfer of reserves to these institutions. The country banks find it hard to reconcile themselves to the loss of interest on reserve balances formerly maintained with correspondents in central or reserve cities. They claim that such contribution to capital stock and transfer of reserves have actually decreased their loaning power, and that it is a more simple and profitable matter to rediscount with their city correspondents. They point to the fact that in the fall of 1914 AldrichVreeland emergency currency notes to the extent of $380,000,000 were issued, and that the Federal Reserve banks have a loaning power of between two and three times that amount today, rendering unnecessary, in their opinion, any further transfer of capital or reserves to the Federal Reserve banks as required by the law. Criticism is also made that the machinery of the Federal Reserve system is a costly proposition, the earnings on the Federal Reserve banks, after one year of operation, having amounted to only 1.8 per cent. on capital above current expenses and not allow

ing for organization outlay. Many member banks, including those in large cities, are far from pleased at the policy of the Federal Reserve banks to use their own funds to compete with member banks in the open market.

CRITICISM OF INTRA-DISTRICT CLEARING SYSTEM

HERE can be no doubt that if the

Federal Reserve Board should attempt to make the intra-district collection system mandatory, that the movement toward the State system will become much more general. It is well known that the Federal Reserve Board is divided on the score of compulsion even if the Attorney General should hold that the Board has authority. So far not more than 2500 of the nearly 8000 member banks have joined the voluntary collection system. The monthly bulletins of the Federal Reserve Board, for some time, have reported a larger number of withdrawals than new entries. It is seriously questioned that any plan for collection or clearing of checks can be successful under the Federal Reserve plan unless a larger number of the State institutions, which transact nearly two-thirds of the total volume of banking business in the country, are induced to join. Rediscounting facilities offered by the Federal Reserve banks have been taken advantage of by only about 10 per cent. of the members.

Another prime reason for the mutiny among country banks may be attributed to the harsh rules and regulations promulgated from time to time by Comptroller John Skelton Williams. It is claimed that his widely published attacks on banks regarding usurious rates have a marked influence on the public mind in undermining the respect hitherto entertained for the title, "National bank." It is pointed out that State laws are more lenient and that excessive rates, especially in the country districts, do not constitute criminal offense. Examinations and the rendering of official reports have been made unduly burdensome in the opinion of many bankers. Arbitrary rules have been laid down by the Comptroller for the guidance of directors which are extremely irksome. The State systems have also been rendered more attractive because of the broader powers of acceptance and the ability to utilize funds for loans on real estate securities. While the

Federal Reserve intra-district collection system has thus far proved of little value, the system of clearing conducted by established Clearing House Associations has been actively and successfully developed, including the creation of country collection departments.

RECONCILING RATES OF INTEREST ON DEPOSITS AND LOANS

HE movement to reduce and secure more

Tuniformity in regard to the rates of

interest paid on various classes of deposits is gaining in force throughout the country. No problem, confronting bank and trust company managements today, is more troublesome than that of adjusting the cost of carrying deposits in view of the prevailing low and relatively unprofitable return on loans. It seems strange, indeed, that European credit is being strained to the breaking point, and that in this country money is about the cheapest commodity of exchange: The combination of influences which renders necessary a reduction in interest rates paid on deposits, particularly on open accounts, is not altogether unwelcome if it results in the eradication of certain practices which have crept into banking policy as a result of the strenuous competition.

Indeed, it is not quite conceivable how some banking institutions can continue to pay the rates they do in view of the market price of money. Nor is there any indication of any early return to normal. The amount of liquid capital in this country is far beyond present requirements to carry on business or commercial transactions. The banks voluntarily restrict their employment of funds because of uncertainty as to the future and the wise policy of quick conversion of assets in case of sudden readjustments in the general situation as influenced by the war. When confidence returns and healthy activity is restored, the surplus of money now held, because of reduction in reserve requirements, the cash and gold payments for supplies sold abroad and the creation of new reservoirs of credit through the establishment of the Federal Reserve system, will probably cease to be a burden. But until such reaction for the better sets in after the conclusion of hostilities abroad, the question of paying cost of interest on deposits becomes more and more acute. It is necessary, also, to keep in mind the influence of the new Federal banking law in equalizing discount rates.

It is gratifying to note that more and more

the banks and trust companies are adopting a uniform policy in regard to discontinuing interest on checking accounts which average below a reasonable limit. Such a rule is justified at all times as a matter of sound banking practice. The small, active account which is maintained simply as a checking convenience and shows no signs of increase is the most annoying, because it permits of no fair return for expense of service and must be more carefully watched to prevent overdrafts or making payments against uncollected credits and "kiting" operations. Not only has the practice become quite general of establishing a minimum average balance upon which interest will be allowed, ranging from $100 to as high as $1000, according to whether institutions are located in large cities or country towns, but the rule is also growing in favor to apply a monthly or semi-annual charge for small accounts.

FOREIGN TRADE AND DIFFICUL-
TIES OF WAR FINANCING
ITH the approach of another season for

W large shipments of produce and the sus

tained export movement of munitions, the problems of supplying credit to European purchasers and of supporting the foreign exchange market are again engaging serious attention. The call made upon depository banks, holding the proceeds of the $500,000,000 Anglo-French loan for payment of the final installment, has given rise to rumors of additional foreign credit arrangements. The British Government has been fairly successful in “mobilizing” American securities to be used either outright or for borrowing purposes to support sterling exchange. Diminished liquidation would seem to affirm the belief, however, that the amount available is rapidly nearing the point of exhaustion. Referring to holdings in France, the Minister of Finance, M. Ribot, stated recently that the total of American securities is not so large as we could wish." It is interesting to note that the British Government has given notice to British banks requesting them to call in loans granted on American railroad shares. That this market is in prime condition to absorb any quantity of our se curities returned from abroad, is reflected in the fact that on March 17th the average price for 40 active listed bonds was 86.71 as compared with 82.55 on the same day last year, and the highest average of 87.35 reached this year on February 4th.

The Federal Reserve banking system has now been in operation for a sufficient time to bring out its strong as well as its weak points. A careful survey shows that all of the predictions of those bankers who disinterestedly devoted their time to assisting in framing the Act have been fully verified. It was contended then, and is now admitted, that the underlying principles were and are sound, and that such being the case, regardless of how defective the act might be in other respects, it would form a useful and valuable adjunct to the existing banking system.

This fact is generally conceded and a state of confidence and an assurance of continued facilities exists in the mind of the public such as has not been experienced in the lifetime of any living man. On the other hand, the points so strenuously contended for by the bankers, and which the law-makers declined to accept, are shown to be absolutely necessary to the completely successful operation of the system.

Criticism of Compulsory Features Justified It was then urged that the clause compelling National banks to join or dissolve was wrong in principle, and that, instead, the system should be made so manifestly attractive as to cause not only all National banks, but all State banks as well, to become members. It was at the same time urged that the system could not be a complete success or serve its full purpose unless a means could be found to cause State banks to join, that to do so it must be made distinctly to their interests, and that this could not be accomplished without making it equally

attractive for National banks, and that, therefore, the compulsory feature was both unfair and unnecessary.

Many National banks have chafed under the compulsory feature, very few State banks have come into the system, and quite a few National banks have accepted the alternative and dissolved, so that the desirability of adopting the bankers' view is still quite as live an issue as at the time the bill was in the making, and the failure of State banks to join is still a source of embarrassment and the greatest weakness of the existing system.

Remedies Which Should be Applied

The remedy is at hand now as it was then, viz., to abolish the office of Comptroller of the Currency and turn over his functions, and those of his department, to the Federal Reserve Board, require as precedent to admission an initial examination of all banks, State or National, require all banks entering the system to submit to such rules and regulations and examinations as the Federal Reserve Board may prescribe, reduce the capital contribution to. some smaller figure, as the additional number of State banks coming in will make this possible and desirable, make the laws as to the nature of the business to be conducted to be applied to all banks alike; the results of which will be that we would soon have a homogeneous banking system instead of the heterogeneous one as now prevails.

It may be contended that to permit National banks to conduct the same character of business as is permitted under the State law would