Thus far the State banks and trust companies who are not members of the Federal Reserve system have been in a position where they could watch the evolution of the system and know they could enter of their own volition whenever they found it to their advantage to do so. Of course, there has been a certain feeling of suspense as to what the Board was going to do with some of the unquestionably great powers lodged in it and the right to have the Reserve banks act as Clearing Houses has occasioned much curiosity as to how far the Board would go in the development of this function.

The recent ruling in regard to exchange charges has removed any doubts as to what the Board intends to do. It is plain it intends to go the limit and thereby extend to member banks collection facilities that will give them a distinct advantage over their competitors if non-member banks are not permitted to participate indirectly in the proposed arrangement. At present by keeping an account with a member bank the non-member has all the present advantages of the collection system with none of the responsibilities or disadvantages attendant upon membership. After all, the non-member is a depositing customer, and the fact that it is a bank should not disqualify it from getting the facilities that the bank can afford any other customer. If the present arrangement is allowed to continue and the Reserve banks do not discriminate against items that show by indorsement they are first han

dled by non-members the proposed regulation will be of distinct benefit to the non-member bank that has many of those out-of-town items to collect, and with whom the loss of revenue from exchange would be more than offset by the lessening of collection expense. If the Reserve banks will decide to handle only such items as bear indorsements of member banks, and none other, then it will be time for the non-members to decide whether the time has come for them to enter the system.

Protest Against "No-Exchange" Plan The recent ruling on exchange has brought clearly to the banks the actual effect of membership in the system as distinguished from the sentimental value of such membership that was urged so strongly at the start. This was clearly brought out at the Bankers' Conference called at the instance of the Texas Bankers' Association, that was held in St. Louis on June 10, 1916. There were 150 out-of-town bankers, chiefly from the South, present at this conference, representing eighteen different States. The purpose of the meeting was to protest against the proposed "No Exchange" plan, and that there might be no doubt as to where the delegates stood in the matter it was voted early in the proceedings that only those who would agree to be bound by the action of the conference should be allowed to participate. This had the effect of reducing the delegates from Missouri, Indiana and Ohio to the posi tion of onlookers, for these representatives

announced their unwillingness to be so bound. Some of the St. Louis bankers counseled moderation and urged the Conference to take no definite action until the full details of the collection plan could be formulated. In reply it was pointed out that sufficient information had been given out to indicate that it had gotten beyond the skeleton stage; that July 15th had been decided upon as the date for the plan to go into effect; that the meeting was called for the express purpose of making a protest, and that there was no time to be lost in making this protest. Summing up, the results of the conference may be stated as follows:

Attitude Outlined at Bankers' Conference in St. Louis

A permanent organization was effected; officers were elected and an executive committee was appointed to take charge of the fight against the "No Exchange" plan. A telegram was sent the Federal Reserve Board asking them not to install the plan until further representations could be made to the Board, and until the conference could arrange, if need be, to have the constitutionality of the plan tested in the courts.

Resolutions were adopted protesting most vigorously against the plan and setting forth the intention of those present to take legal steps in protection of their rights. An appeal was made for funds to be used for the legal and other expenses incident to such action. If necessary, Congress would be asked to amend the Federal Reserve Act, so that the banks would be protected in their right to charge exchange. The conference adjourned subject to the call of the president, and doubtless more will be heard in due season from the activities of its officers and executive committee.

Treatment of Non-Member Bank and Trust Company Items

It is to be regretted that there was one point not brought up that would have provoked some interesting discussion; and that is, assuming that the proposed collection plan will be held legal by the courts and put into effect, and that, as has been hinted, the post-office department will be asked to undertake the collection of items in towns where the banks refuse to remit at par, what is the non-member bank going to do about it? In the country the non-member will simply have to do what the Federal Reserve bank says, but as long as its city correspondent treats it as well as heretofore in collecting its items it will see no additional reason for joining the system. In the city, as has been pointed out, everything depends on the attitude of the Reserve bank.

If the non-member bank in the city cannot

indirectly share in the advantages of the system, how can it collect its out-of-town items, is the next question to be settled? Country Clearing Houses have sprung up in many of the large cities that have effected wonderful economies in making such collections. It is hard to say how many of these Clearing Houses would be able to continue their existence if the members of the Reserve system should withdraw. As the country Clearing House pays exchange charges when it has to it is unlikely that it could collect as cheaply as the Reserve banks who will have no exchange to pay. Certainly it does look as though it would be unwise and unprofitable to have a country Clearing House and the Reserve bank performing the same function in the same city or district. And the country Clearing House, it is plain, would have a hard row to hoe in the event of keen competition between it and its rival.

System of Deferred Credits and the "Float
Problem

Then, again, by patronizing their Reserve banks the members are benefiting themselves by making the Reserve bank transit department pay its own way instead of being operated at a loss as is now the case. On the other hand the system of deferred credits that will be installed will mean that a member bank will have two accounts with its reserve agent; its nominal balance and its actual reserve balance with float eliminated. Naturally, a bank would have the same right to use this analytical method of bookkeeping in carrying the accounts of its customers, for it should not be expected to carry reserve against float deposit, but only against its net deposits. Here are possibilities for complicated ledger-sheets and the attendant computation of reserve that make one shudder.

If the "No Exchange" plan works out we may see the Reserve banks evolve into gigantic Clearing Houses, through which all out-oftown items will be handled. Because of the credit deduction for float the personal check, especially when it goes a long way from home, may find itself more unpopular than when it carried an exchange cost, and the bank draft may be used more widely. If the Reserve banks are going to do all the collecting, the accounts of banks with other banks will be largely of an inactive nature, and perhaps more profitable to both. In the endeavor to do away with float there may result county and district Clearing Houses for the handling of what may be called neighborhood items, that may answer the purpose very successfully in localities far removed from a Reserve bank. Where the new plan may lead it is hard to foresee.

This is a day of evolution in finance as in everything else and we must not blind ourselves to the possibility of future profit in the contemplation of a present loss in one item of revenue, the entire justice of which may be seriously questioned. The fact that the large member banks in St. Louis, a Reserve bank city, are not antagonistic to the plan, while the banks in Dallas, another Reserve bank city, are loud in their disapproval, shows that there is at least a divided opinion.

New Plan Entitled to Fair Trial

Let us face a few facts. In the Postal Savings System we already have Government facilities for handling savings deposits that will likely be extended and made more attractive. The banks for the most part fought this legislation bitterly, but now that we consider it soberly, how much harm has it done us? After November 17, 1917, interest on reserve deposits of member banks will be a thing of the past. Is it not just as well that this should be the case-for the deposit on which interest is paid is strictly speaking a loan 1ather than a reserve? Because of the re-discount privilege in the Reserve system it is unlikely that interest rates will ever average as high as heretofore. If this makes for greater stability in the general financial situation, is it not worth while? Now we are about to see the passing of exchange. Shall we condemn the plan in advance without giving it a fair trial? The loss of the exchange revenue, while it may be a severe hardship to many banks, is not going to occasion any great popular indignation. The day of drastic financial legislation is not over and agitation for National guaranty of bank deposits is not so remote as it sounds. We had better adjust ourselves with as good grace as we can, to the changing conditions and take care to remember that just as prejudice against banks is always to be deplored, we must be careful not to allow ourselves to be swayed by our own prejudices against certain men and

measures.

Looking at the matter calmly it must be admitted that if the non-member bank in the city has an amount of out-of-town business that can be handled to good advantage only through the reserve collection facilities, then it will have no recourse but to join the system. This is practically compulsory membership, yet how many of the present members joined because they wanted to? And, it must be remembered, that by reason of their large capitalization and heavy deposits, the membership of these city institutions, notably the trust companies who handle commercial business, will be much more desirable and valuable than the banks in the small towns. Thus far, it is true, voluntary entrants have been few; this is solely

because membership presents not enough advantages. The cry raised in some quarters that banks should join for patriotic reasons is ill-timed. When the member banks show more enthusiasm; when there is less complaint from the National banks of the alleged czar-like methods of the present Comptroller of the Currency, whose forceful efforts on behalf of his charges seem to be based on the principle that "Whom he loveth he chasteneth"; when the time comes by reason of internal necessity or external attack for the display of the true patriotism that means sacrifice, devotion and the voluntary co-operation that counts, then the banks will be found working together in the ideal way intended and hoped for by the framers of the Reserve act which, it must be admitted, is still far from being the complete and smoothly-working enactment our country demands and has a right to expect.

How Check-Collection Plan Will Operate In a communication issued by Governor Benj. Strong, Jr., of the Federal Reserve Bank of New York, the requirements as to the new check-collection and clearing plan are set forth as follows:

"To make the operation of this collection system as broad as possible, the Federal Reserve Bank of New York will receive and collect all items drawn on members of the entire Federal Reserve system and such items drawn on non-member banks as it can arrange to collect at par. For the present it is proposed to establish direct collection facilities with nonmember banks in towns where there are no member banks. Opportunity is given to you to receive direct from the Federal Reserve Bank of New York checks on yourselves to be remitted for at par on day of receipt. Payment for such items may be made by shipping properly assorted Federal Reserve notes or lawful money at our expense or if more convenient, by draft on New York.

"To all non-member banks co-operating in this arrangement will be extended the privilege of having printed on all checks drawn on them the words "Collectible at par through the Federal Reserve Bank of New York." Checks bearing the indorsement of non-member banks who agree to remit at par to the Federal Reserve Bank of New York will be accorded all the collection facilities of the Federal Reserve system when such checks are received from a member bank."

It is understood that a large number of member banks of the various districts to whom similar communications were addressed have formally advised that they are willing to remit on day of receipt at par.

The nation-wide thrift movement of the American Bankers' Association is significant in that it is timely, it meets with popular response, it has been prepared in accordance with scientific publicity principles and it is being systematically presented to the various communities throughout the United States. It is foolish to assume that any work of propaganda would prove successful if undertaken in fits and jerks. The effect, at least, would not be permanent. It is only through persistent plodding that results are secured. Earnest effort must of necessity be put into the preliminary work and carried on often for a long period of time. It was in 1912 that the present thrift movement which has grown to such huge proportions had its " inception. The year 1916 came and with it the centenary of

savings banking in

America. The timely opportunity for a

great work of public good and of benefit to bankers which would be in celebration of this important event was under

taken and the cen

tennial nation-wide

thrift campaign was launched.

Why the National
Thrift Movement is
Timely

Manifestly, it is unnecessary to discuss the need for thrift in America. It is a matter of common knowledge that today more than at

any other time in the history of the nation is the question so important. So far as business is concerned-the business of making moneyit has become increasingly necessary for concerns to eliminate waste, to cultivate the utilization of by-products and to practice the virtue of thrift intensively, in order to successfully compete with each other. Hence, there has arisen in the past few years a new profession known as "efficiency engineering." The United States undoubtedly stands second to Germany in this respect. Thrift in the individual, and the application of efficiency principles in him have become more important.

There is no doubt a greater efficiency on the part of the individual as a result of educating him in the principles of thrift is eminently desirable to the banker as well as the business man. If there were no thrifty people, the trust company would not have to go to the trouble of making wills and of administering estates; the new business department of the National bank would have to be eliminated; the very community, the State and the Nation would indeed be on a rather shaky basis. There' has been a tendency, with respect to the campaign above referred to, for commercial banks and trust companies not to take the matter