banking has been devised which will prevent periods of undue speculation, followed by commercial crises in which the speculators will be ruined. I do not claim that any system of banking is a panacea for all the difficulties of commerce. But I do claim that there is a tried and proven system of banking which has the capacity so to support legitimate credits during commercial crises as to maintain normal valuations of property, and thereby preserve the legitimate traders, and keep the wheels of industry in motion, and labor fully employed at normal wages. I also claim that such a system of banks is necessary to enable this country successfully to compete in the commerce of the world. I stand upon these propositions.

Such a system of banking in no respect resembles a trust. It does not restrict competition. In a visit to a town of only 4,000 population in British Columbia, I found branches of five of the great Canadian banks competing for the business of that little town. Besides, loss of a life's savings by the insolvency of banks, bankruptcy of solvent debtors, distress of families reduced from comparative affluence to want, lack of labor, a bed on the bare ground in summer and on the bare floor of a police station in the winter, soup kitchens, and other incidents of the panic, are no part of the liberties of the people.

I appeal to you, as representatives of the banking interests, and as patriotic citizens, to give this important matter more than a passing thought. This subject is incomparably of more importance than any detail of internal bank management. Have the courage at least to discuss it, and, if thought wise, put the machinery in motion for another campaign of education. The subject only needs to be properly presented to receive the support of the people.

DESIRABLE CHANGES IN THE BANKING LAW

ADDRESS DELIVERED BY A. BARTON HEPBURN, PRESIDENT OF THE CHASE NATIONAL BANK OF NEW YORK CITY, MARCH, 1902.

It was Jefferson who said, "That country is governed best which is governed least." This, being interpreted, means that men should be protected in their lives, liberty, and property rights with as little

paternalism on the part of the government as possible. In all civilized nations there are certain public utilities or functions intimately affecting the people as a whole, too great and too important to be entrusted to individual enterprise. A government must protect its citizens at home and abroad; hence our armies and navies. Government must provide courts to interpret laws, determine and enforce the rights of citizens and punish those who offend against the body politic. It is equally a duty of government to provide highways for the convenience of travel and interchange of commodities; also for the transmission of intelligence by mail or wire. Experience proves that this latter function may be best exercised by enlisting private enterprise through corporations invested with the right of eminent domain, but subject to government regulation. As a consequence, railways owned by individuals transport persons, property, and the mails, while telegraph and telephone companies, with their quicker service, keep abreast of the age.

There seems to be a growing demand that all these public utilities shall be owned and operated by the government. The trend of events seems to be strongly in that direction. Conceive the entire steel and iron industries of the country under the control of a single corporation. It is but a short step from a single corporate control, where the management has only an investment interest-the hope of dividends in the thousands of human digits employed, to governmental control, where the management would have a humanitarian as well as a financial interest in the lives and welfare of the employed. Conceive the railways of the country in a single system, or two or three systems, and how long would it be before the inevitable friction between the public and the management would enforce governmental control and ownership? The power of taxation involved in the fixing of prices for great staple commodities, and the fixing of rates of transportation, in its effect upon and its relation to the public, dwarfs in importance the power of taxation exercised by the government for the ordinary purposes of administration. Legislation is invading every field. Questions formerly determined by common law depend upon the construction of a statute. To magnify and extend the functions of government is surely the tendency of the age. This tendency is being accelerated, not by populists or socialists, but by the opposite extreme, the moneyed class-the class

most opposed to such a consummation. The relations between the management of our great industries and the government are necessarily close. Economic laws, export bounties, and tariff restrictions are enacted with a view to fostering industry. Territorial expansion and commercial development seem to have taken the place of territorial expansion and military aggrandizement as the motto and the motive of the nations. The navy of France, hovering along the Dardanelles, recently enforced payment from Turkey of a debt due to citizens of France. The relation between government and individual enterprise is becoming closer and more intimate the world. over. The continual extension of the sphere of governmental control and the consequent narrowing of the sphere of individual influence cannot be regarded, I think, except with some feelings of apprehension. It is this tendency that makes it so difficult to take our government out of the banking business. As the government civil list increases, let us hope that civil service principles will become so firmly imbedded in the public mind as to preserve and not endanger the merit system, else the government payroll may become the means of fortifying the party in power.

The banking interests, like all other important interests of the country, are suffering from too much, as well as too little, legislation. National banks are not allowed to establish branches, while the law as to reserve tends to weld the system together and prevent a bank from going into the state system, where branches may be allowed. The large banks in metropolitan centres, with large capital, easily increased as occasion may require, large deposits, large resources, following a natural economic law, would establish branches and agencies throughout this country and other countries, according to the magnitude of their business, and according to the business advantage and probable profit which each locality might offer. In this way the capital of our money centres would be profitably employed, with corresponding advantage to the various interior localities during the periods of their greatest business activity, when commercial needs exceed the resources of local institutions. Such a system would strongly tend to equalize the rates of interest throughout the country, and by so doing minimize the sectional feeling which now exists and is largely predicated upon money conditions. Such a system would insure comparatively few large banks

with branches throughout the country. This would insure the best kind of competition between strong and resourceful institutions. The central institution controlling the resources of the system could bestow its credits where the demand was greatest, thus realizing the best returns upon its funds and affording the public the best service by dispensing its credits where most needed. Such institutions would be splendidly equipped for furnishing a bank-note currency.

There are three central reserve cities, New York, Chicago, and St. Louis, required by law to keep a cash-in-bank reserve equal to twenty-five per cent. of their deposits. There are twenty-nine other reserve cities, each with a population exceeding fifty thousand, required to keep a twenty-five per cent. reserve against deposits, one-half cash in bank and one-half with approved reserve agents in central reserve cities. All other banks are required to keep a six per cent. cash-in-bank reserve, and nine per cent. may be with approved agents in some reserve city. In the smaller towns and cities the greater percentage of actual currency is used. They cannot transact their current business with a cash reserve of less than six per cent. of their deposits. The present law is no restriction at all. If the purpose of the law is to strengthen banks it would be better to require reserve cities to keep fifteen per cent. and the smaller towns ten per cent. cash in bank reserve, and to leave the balance to be maintained with correspondents regulated by the necessity of protecting their drafts and other considerations. Only a national bank can be a reserve agent of another national bank. This provision of the law keeps the larger banks of our cities in the national system, as it is deemed more advantageous to be the correspondent of interior banks than to establish branches, as might be done under some state laws. Then, too, banks not only deal in credit, but subsist upon credit, and a bank would experience difficulty in commanding entire public confidence while doing what institutions organized under the National law are forbidden to do.

As I have stated before, banking, like all other branches of business, following a natural law, would seek to extend the field of its labors and increase its returns by the establishment of branches and agencies. This is shown by the experience of other nations and by the experience of our own states prior to 1860. In nothing is it more strongly shown than by the efforts at present making to

accomplish indirectly the benefits attendant upon branch banking by purchasing control of or an interest in other banks, as many of our leading institutions are doing at the present time upon quite an extended scale. We also read of holding companies and trust companies organized under the laws of the different states for the avowed purpose of acquiring and holding stocks in different institutions throughout the country. The counterfeit is the strongest endorsement that can be given to the genuine.

Congress made pooling agreements by railroads illegal, and under the anti-trust law the Supreme Court held that the fixing and maintaining of traffic rates was illegal. On account of these prohibitions and because of the necessity of having certain and predetermined traffic arrangements with each other, there developed the community of interest and joint ownership system which now obtains. Cost of transportation is a vital element in the cost of all finished products, and in order that a merchant may deal fairly with the public and conduct his business intelligently, he must know the cost of transportation of the commodities in which he deals for a period extending many months into the future. Where his shipments are over not one road, but several different roads, it necessarily follows, in common fairness to the public as well as to the merchant, that these several roads should be allowed to unite in making a rate not only for the present, but for the future. Thus the business interests, confronted by these prohibitions, sought some other method of accomplishing the desired result; hence most of the railways east of Chicago and north of the Ohio have passed into the control of either the New York Central or the Pennsylvania system; and hence also the process of absorption in other parts of the country by means of joint ownership or holding companies or otherwise, which is arousing such keen public interest at the present time.

The prohibition against the establishment of branches and the desirability of close affiliation is developing rapidly a system of joint ownership in banks. To what extent it may be carried, and how successful it may be as a business venture to the investors, and whether it will increase or diminish the ability of such institutions to serve the public, remains to be seen. Such institutions, owned by strong people and in the hands of conservative managers, could certainly render the public great service. If, however, the stock of