Forms for Co-Partnerships and Individuals The form for co-partnerships is substantially the same with the exception that provision is made to determine whether there is a special or limited partner, and, if so, the amount contributed to the business and when such amount is subject to withdrawal. Provision is also made for any endorsements or guarantees of the partners individually, and also as to when the partnership terminates. The individual form is also substantially the same with one or two exceptions to fit, the case. One of the outstanding features about these blanks is the fact that provision is made to cover any losses which might have been sustained between the time the inventory was taken and the time the statement is submitted to the bank. Very often many months, intervene before an annual statement is received; in the meantime it is not impossible for many changes to take place which might materially alter and affect the figures. By making such a provision the statement is for all practical purposes brought up to date. The absence of an abundance of questions will be noted, in fact not a single question confronts the customer. He is simply required to take a specific stand in regard to certain items in connection with his business, and these are so condensed as to bring out merely those facts which are pertinent to the extension of credit. BANKING POWER AND NEW WEALTH IS SAFELY EMPLOYED The Mechanics & Metals National Bank of New York City has prepared and distributed among its correspondents a special letter which contains an admirable survey of current banking and business conditions. It is not only reassuring in its estimate of American business prospects but also discusses in a practical way some phases of the credit and reserve situation which have been the subject of more or less intelligent public discussion. The letter brings under review the remarkable records of business momentum which have continued during the period of 1906 which has elapsed- and presents the reasons for the strong current of optimism which characterizes banking sentiment in New York City. It is shown that some of the concern entertained as to symptoms of "inflation" is hardly justified by the facts. While bank loans have expanded at a rate never before equaled cash reserves have increased in more than corresponding ratio. The letter sets forth that a considerable part of the addition to bank loans is accounted for by credits to enable the purchase of high grade American securities returned to this country from Europe in large quantities; a large part is also due to credits extended to foreign nations both neutral and belligerent; to the activity in the home security market and to facilitate domestic trade activity. Affirming the strength of the present position the Mechanics & Metals National Bank says further: "It is plain, then, that the United States has. had advantages so far in its favor that its riches have increased beyond previous bounds. Means to employ those riches have been found in several ways. Part of the new wealth has been employed in buying back American securities that were offered from Europe. Another part has been made available again to Europe, in the form of loans and special credits. Another part has been lodged in bank vaults in the form of imported gold, and it would have been a notable departure from all human experience if the lending facilities which this new gold gave the banks had not been drawn upon, to some degree, by manufacturers and merchants seeking to benefit from the active trade conditions of the United States. Particularly would it have been strange if borrowers had withheld their demands in the face of a decline in interest rates to. levels which had not been seen before in twenty years, save for occasional short intervals. "Yet, withal, excessive borrowing has been held in check, and it would seem, viewing matters in the light solely of the money market, that there are only two things that might create a really difficult position at the banks; namely, a further indefinite increase in bank loans without corresponding increase in the cash reserves, or a sudden and startling decrease in the reserves themselves. Of both contingencies there is no present sign. Were one movement or the other to begin on a really large scale, however, there are, beyond the present high surplus over reserve requirements at the banks, the immense rediscounting facilities of the Federal Reserve system-facilities so far practically untouched, which act as an insurIance against repetition of what occurred in certain unfortunate years of American banking history." ILLINOIS: RIVERDALE-The First Trust & Savings Bank is being organized with a capital of $25,000 by Otto F. Reich, Geo. A. Stevenson and others. SUMMARY OF TAX PROPOSALS AND LEGISLATION DURING RECENT SESSION OF NEW YORK LEGISLATURE WALTER LINDNER Solicitor of the Title Guarantee & Trust Company of New York, and Associate Counsel Joint Legislative Committee on Taxation The State of New York knows that its tax system is defective. It realizes that the system of direct taxation of personal property has repeatedly been demonstrated to be a failure as a producer of revenue and an unequal burden upon the citizens of the State. It is finding cut that its fixed special taxes upon certain classes of intangibles and corporate franchises is unscientific and that its taxation of corporate franchises generally is of such a character that the results are inadequate and the burdens unequally distributed. Other problems in relation to the tax system and its administration call for study and remedy. Recommendations by the Mills Committee The Legislature of 1915 floundered about trying to patch the leaky hull in the hurry of a legislative session and seemed to make confusion worse. Finally, nothing was done but to repeal the secured debts law, which will be referred to later, and to appoint a joint committee to investigate. This was, undoubtedly the wisest move, especially in view of the fact that the chairman was a Senator who in a short career as legislator had shown peculiar ability and high purpose. The Mills Committee had this and other advantages, when it attacked the problem and it presented to the Legislature of 1916, a report in which it stated the defects in the present system of taxation, and made distinct recommendations for improvement. The principal recommendation of the committee was that the system of direct taxation of personal property, of special taxation on intangibles, and of franchise taxes on business corporations be abandoned, and that an income tax upon individuals and corporations residing and doing business in the State be substituted. The reasons for condemning the present methods and for recommending the expedient suggested by the majority of the committee are stated fully and clearly in the report to which is attached a draft of an income tax bill. This bill was introduced in the Legislature by Senator Mills early in the session. Naturally with a gubernatorial and presidential campaign coming on in this year, the pusillanimity of the party in control doomed the proposal of such serious legislation to inaction and while the bill was accorded a polite hearing by the legislative committee which had it in charge, it was not moved, and will fail for this year. Tax Measures Introduced Other members of the Legislature proceeded to pursue the usual process of introducing bills some well intentioned and some without good intention, some founded in reason and some without reason, but all merely patching the old hulk. One topic which seemed to interest a number of the members of both houses is the great amount of property exempt from direct taxation which is held by religious, eleemosynary, educational and kindred corporations. A number of bills were introduced to cut down the amount thus held out of the tax base, or at least to limit the exemption to property actually used for carrying on the corporate objects of the corporations, but they all failed. Nothing was done with any other taxation bills until late in the session, in fact when the week began in which the session is to end, but two very unimportant amendments to the tax law had become law, and final action had not been taken on any of the other bills but it was certain that the income tax bill had been killed. In the last week of the Legislature a few bills were taken up and passed. None of them are fundamental but all are mere makeshifts. The subject of secured debts was taken up again. In 1911 a form of special tax on certain intangibles was enacted, which placed them on the same basis as mortgages, that is to say, on payment of one-half of one per cent. on the principal, such securities could secure exemption from taxation for State and local purposes. This was found to be discriminatory, and to tend to dry up an important part of the tax base, so in 1915, this tax and the permanent exemption granted thereby were abol ished, and a temporary tax and limited exemption were substituted. The opportunity to gain this limited exemption expired November 1, 1915. This proved unsatisfactory and so the Legislature has again passed a temporary act, under which at any time before January 1, 1917, securities may be taxed at the rate of three-fourths of one per cent. on the face value, and gain exemption for five years. The bill continues the exemptions gained under the acts repealed, so that the State keeps faith with the holders of the exempted securities. Transfer Tax Legislation It was believed that the yield of the transfer tax upon inheritances could be increased, and a number of bills upon this subject were introduced. Finally in the last days of the session one was passed, which retains the principles of the law as they now are, but reduced the exemptions and lowers the amounts which cause increase in the rate. It is estimated that this change will produce an increase of $2,000,000 annually in the yield of this tax. It is fortunate that the projects to abolish the difference between tangibles and intangibles of nonresident decedents failed. The adoption of such a measure would have been a serious The South Coming Into Its Own The lack of capital to develop native resources has been the one great factor in militating against the development of the South. Perhaps no other section of the country was so seriously affected during the early stages of the European war as the South because of the enforced embargo on cotton. This experience has, however, not been without its redeeming features. It has, first of all, created a more practical spirit of co-operation among cotton growing, business and financial interests than ever existed before. This was emphasized at the second conference of the Cotton States Bankers held in this city last November and which resulted in the completion of plans for improved methods of marketing and financing the cotton crop, and encouraging the construction of up-to-date warehouse facilities. The southern farmer has also seen the light as to the need of greater diversification in crops so that the South will not be solely depen dent upon the marketing of cotton. Despite the many drawbacks in the operation of the Federal Reserve system it is expected that a larger volume of credits will be available through the development of the business of the Federal Reserve Banks of Atlanta and Dallas. It is significant, however, that the southern banks have secured the most valuable assistance in the way of rediscounts and advances through their correspondent banks of the central reserve districts. menace to business interests of the State and would doubtless have reduced the yield of this form of taxation very materially. Various projects to change the franchise tax on corporations were introduced. One was in- . troduced by the Committee on Taxation which would have taxed corporations not only upon their earnings, but also charged as earnings interest paid upon indebtedness. This bill seems to be dead. Others on this subject were introduced, but none will probably be enacted which make any substantial change. A very voluminous bill to amend the tax law generally, of more than one hundred printed pages is on final passage. It makes no substantial change but clears up verbiage and settles small administrative questions. As this is being written, the action of the Legislature on its final day is not yet known, but what is stated above is practically all that will be done this year. The Governor will have thirty days to act upon these bills, so that it is not certain now whether they will all be signed. It is proposed, however, to continue the Mills Committee for another year. If this is done, there will be opportunity for further study of the taxation problems of the State, and it may be possible to make some reforms next year which will be worth achieving. SOME PRACTICAL CONSIDERATIONS IN THE SOLUTION OF THE CLEARING AND CHECK COLLECTION PROBLEM SUCCESS AND GROWTH OF THE "COUNTRY CLEARING HOUSE" SYSTEM Secretary of the Clearing House and National Bank Sections of the (EDITOR'S NOTE: Varying opinions are entertained by bankers as to whether the defects which characterize present methods of clearing and collecting checks may best be remedied by extending the operations of the Federal Reserve banks or by developing and improving the facilities offered by Clearing House associations. It is generally acknowledged that the Federal Reserve Board has thus far obtained no definite results in connection with the voluntary intradistrict check collection plan, which was put into operation over a year ago. Mr. Thralls is recognized as one of the foremost authorities on this subject, and his views will be of interest to all those who are earnestly desirous of a scientific and correct solution of one of the most serious problems affecting banking relations in this country.) Development of the great agricultural, industrial and commercial interests of the United States has afforded the most fertile field the world has ever known for the introduction of new ideas and new methods. Yet constant criticism and complaint extending over a period of twenty-five years was necessary in order to awaken Congress to the realization of its duty to pass legislation contemplated to correct the defects in our currency and banking systems which periodically upset our whole business machinery and wrought havoc and ruin. The cry throughout the country was for an elastic currency and a place where banks might turn at all times and convert liquid assets into credit or cash with which to meet the unusual legitimate demands of their respective communities. The Federal Reserve Act provides a system which, if properly operated, will cure these two important defects and will do much toward advancing this country as a great world power commercially and financially. But it seems that Congress sought to inject into the new law many additional features which the lawmakers considered incidental to the main plan, and which they deemed easy of operation and productive of many good results from the standpoint of the general public. One of these apparently innocent features is included in Sections 13 and 16, and provides that the Federal Reserve banks shall or may perform certain functions of the Clearing House. The members of the Federal Reserve Board have earnestly and diligently wrestled with this feature. Experts from all sections of the country have been called into conference regarding it; thousands upon thousands of dollars have been expended in conducting investigations, gathering statistics and information which it was hoped would bring about a definite solution. But after a period of more than fifteen months, we find the proposition remains to be solved, and the present status is that the Federal Reserve Board, because of differences of opinion among its members, has made request of the AttorneyGeneral of the United States for his opinion as to certain phases of these two sections of the law. Enforcing Collection of Checks and Drafts at Par One Federal Reserve bank holds that it has the right, under the law, to enforce the collecting of checks and drafts at par, and accordingly that institution gives immediate credit to its respective members for checks and drafts drawn upon members where such items do not bear the endorsement of a bank located outside of that district. The items are immediately charged to the accounts of the members on which drawn and the clearing is thereby completed; that is, in case an overdraft is not caused. In event of an overdraft, a sufficient number and amount of items are reversed and returned to the depositing member banks to eliminate the overdraft. (A practice which is questionable both from a legal and business viewpoint.) Varying Views as to Clearing Functions of Federal Reserve Banks Other Federal Reserve banks hold that in their opinion the law does not intend that the Federal Reserve banks should perform any actual service in the way of clearing items, but are intended to serve only as regulators of exchange. Still others hold that the clearing feature should be voluntary, that is, voluntary from the standpoint of the member banks. Under the latter plan, the members are invited to join the clearing system and in so doing to authorize the Federal Reserve bank to charge items drawn upon them to their respective accounts with the Federal Reserve bank and to agree to carry with the Federal Reserve bank sufficient funds to protect such items. In some instances, the Federal Reserve banks have required that these agreements, and authorities to charge items to accounts of members, be granted only through special resolutions passed by the board of directors of the respective member banks. The combined volume of business handled by the twelve Federal Reserve banks since the opening of their respective clearing departments has not been sufficient to justify a conclusion as to the feasibility of any plan that has been undertaken by any of these institutions. Probably less than 18 per cent. of the members of the Federal Reserve system have committed themselves to the clearing plan in operation in their respective districts. Attitude of Interior Member Banks Banks outside of reserve cities wherein the Federal Reserve banks are located, are reluctant to bind themselves to carry excess balances with the Federal Reserve banks and arc slow to break away from their old, well-tested connections for the purpose of trying out a new scheme, the scope of which is not well defined and the cost of operation of which is unknown. The secondary reserves, being the balances with reserve city correspondents which have served as a basis for clearing or collecting of items, have been earning considerable interest and the banks will hesitate to waive this revenue. The interior banks strenuously object to giving up their exchange charges, which they deem a legitimate revenue coming from services rendered. The clearing of checks is a highly important matter and is very closely linked with the question of reserves. In fact, checks are at this time the only form of currency which fluctuates to meet business requirements. Over 95 per cent. of business in the United States is transacted through means of checks and drafts. The volume and number of these items is increasing in proportion to the growth and development of our various lines of industry. The personal check has become a great factor in business development. Its use has been encouraged by both city and country banks. It has been the means of inducing thousands upon thousands of persons to open bank accounts. It saves a bank customer much time and trouble and is a very convenient servant. While its use has gradually heaped a burden of expense, which is almost unbearable, upon hundreds of banks, it has become a direct revenue producer for others and even when remitted for at par, it is an indirect producer for the interior banks. Existing Collection System a Product of The present collection system is the result of more than 50 years of experience and while it is admittedly defective, it cannot be completely overthrown without serious interruption to business. It took more than 60 years for the greatest clearing house in America to decide to extend its functions to include a collection of out-of-town checks and drafts for a comparatively small area. This question should be viewed from a nation-wide standpoint and all bankers should study it carefully and lend their co-operation to the end that a system may be evolved that will be generally satisfactory and will render the best service at the least possible expense. It can be definitely solved only when proper regard has been given to equity, service and economy. Success of the Country Clearing House System The Clearing Houses of Atlanta, Boston, Kansas City, Nashville, New York, Oklahoma City, Richmond, St. Louis, and some of the other important cities have adopted a plan of collecting out-of-town checks and drafts, drawn on banks, through a department known as the "country clearing house." This plan has been tested thoroughly under varying and most unsatisfactory conditions and from the standpoint of economy and service it has proven of great success. If it is desirable for the Federal Reserve banks to maintain clearing departments, the operations of such departments should be so arranged as not in any way to impair the ability of the Reserve banks to take care of the maximum credit needs of their respective districts. These departments should be put on a selfsustaining basis and the banks that patronize them should bear the burden of the expense of their maintenance. Items should not be charged to the account |