Seven different types of substitutes for cash have been distinguished, though some of them closely resemble each other. There were also many variations in the various individual types.

A. The familiar expedient of issuing clearing-house loan certificates in denominations ranging from $500 to $20,000 for use in settling interbank balances has never been resorted to upon such a scale as in 1907. During the panic of 1893 eight cities were reported to have employed them; but during the disturbances of 1907 they were used by no less than 42. The aggregate issue of regular clearing-house certificates in the entire country during the panic of 1907 was 238 millions, or nearly three and a half times the total of 1893.

B. During the panic of 1893, for the first time clearing-house associations issued certificates in currency denominations to be used by the banks in paying their customers. Their issue, however, was practically confined to the southeastern states. In the panic of 1907 Georgia was again, as in 1893, the center for emergency circulation of this sort, what were called "clearing-house certificates" being issued in at least 21 Georgia towns; but devices of that name were also put in circulation in many other parts of the country, and not infrequently even by banks of small towns, where no clearing-house had ever existed. In such cases they were issued under the auspices of temporary committees of the local banks, which accepted and held the collateral offered to guarantee their redemption.

These small certificates, like the large ones, were secured by collateral deposited with the clearing-house committee, and were practically guaranteed by all the associated banks, in that these banks agreed to accept them at par for the sum named. The description of collateral in most cases was a general affirmation that "this certificate is secured by the deposit of approved securities." But sometimes there was more detail, as in Portland, Oregon, where it was asserted that the banks have deposited "notes, bills of exchange, and other negotiable instruments secured by wheat, grain, canned fish, lumber actually sold, and other marketable products, and bonds approved by the committee," etc.; or in the case of Charleston, South Carolina, where there were said to be deposited "securities of double the value of this certificate, or bonds of the United States or of the State of South Carolina, or of the city of Charleston, or of the city of Columbia, 10 per cent in excess thereof."

Many of the certificates were elaborately engraved and were shaped and colored so as to resemble ordinary bank or government

notes. In denomination they usually ranged from $1 to $20, but in some cases, as in Montgomery, Alabama, they were issued for convenient sums all the way from 25 cents to $50.

The compilation here presented, though very incomplete, records an issue of $23,831,813 of such devices in the course of the panic of 1907. C. Identical with these certificates in character and function, though differing in form, were the clearing-house checks issued in a number of cities. Like the certificates, they were issued by the associations to member banks upon the deposit of approved securities. Like them, they were accepted for deposit in any of the banks, but were payable only through the clearing-house. They were also in currency denominations, and were often quite as elaborately engraved, so as to resemble currency. The one peculiarity which distinguished them from certificates was that instead of merely certifying indebtedness on the part of the clearing-house association, they took the form of checks drawn on particular banks, and signed by the manager of the clearing-house. In Chicago a bank desiring such checks deposited with the clearing-house a corresponding amount of the ordinary loan certificates of large denominations and received the checks in currency denominations in exchange. They were also issued in Cleveland, Milwaukee, Youngstown, South Bend, and some smaller cities. Our record includes $12,060,248 of such issues.

D. In spite of the provisions of the National Bank Act, that no national banking association shall issue "any other notes to circulate as money than such as are authorized by the provisions of this title," a large number of national banks issued what were practically circulating notes in the form of cashier's checks in convenient denominations. In spite also of the 10 per cent tax upon any notes issued by state banks, similar devices were issued freely and without hindrance by some of those institutions as well (e.g., in Superior, Wisconsin). These checks usually purported to be "payable to bearer," but they were "payable only through the clearing-house," or "in exchange," or, as the phrase sometimes went, "in clearing-house funds." While in the southeastern states it was common for the banks in the small towns to issue conjointly what they called "clearinghouse certificates," in small towns of the Middle West the "cashier's checks" of the individual banks were much more common. Sometimes these cashier's checks, like clearing-house certificates and clearing-house checks, were secured by the deposit of approved collateral with a committee of the clearing-house.

E. Another variety of currency issued during the panic were the New York drafts in denominations of $1 and upward, issued by the banks of Birmingham, Alabama, and which were used for pay-rolls and general circulation in that locality. They were really cashier's checks drawn on New York, but were drawn against actual balances held by particular New York correspondents. They were payable through the New York clearing-house, and were not otherwise secured, yet they appear to have circulated in and about Birmingham to the extent of millions of dollars without difficulty.

F. In a few instances the currency issued by the banks took the form of negotiable certificates of deposit in convenient denominations. Sometimes these certificates asserted that a particular person or company made the deposit, as in the case of the Bank of WinstonSalem, North Carolina. Sometimes the assertion was altogether general, as in the example from Berkeley, California. In some cases they bore interest, and were payable after the expiration of a certain period; in others they were immediately acceptable by the issuing bank through the clearing-house, and in such cases they bore no interest.

G. Last of all among the emergency devices were the pay checks payable to bearer drawn by bank customers upon their banks in currency denominations and used in all parts of the country in payment of wages and in settlement of other commercial obligations. These checks were generally "payable only through the clearinghouse," but they differed from those which have as yet been considered, in that they were not a liability of the clearing-house association or of the bank on which they were drawn, but of the firm or corporation for whose benefit they were issued.

The pay-check system reached its largest development in Pittsburgh, where during the panic some $47,000,000 were issued, much of which was in denominations of $1 and $2. Their issue involved much more labor to the clearing-house, to the banks, and to the corporations using them than the issue of clearing-house checks would have caused, for most of them were rushed back to the bank within a week or ten days, and new checks had to be issued in their stead.

Pay checks were also issued by railroads, mining companies, manufacturers, and storekeepers in a large number of cities. Shops and stores and places of amusement in the neighborhood of their issue generally accepted them, and it is indeed surprising, considering their variety, their liability to counterfeit, and their general lack of

security, how little real difficulty was experienced in getting them to circulate in lieu of cash.

VI

THE REGULATION OF BANKING

Introduction

Banking was one of the first forms of business to be subjected to government regulation. Because of the almost universal demand for the accomodations which banking affords and because of the tremendous power that is inherent in the control of loanable funds, the business has long been regarded as quasi-public in its nature. Indeed, there are many who hold that all banking should actually be conducted by the government itself; that to permit private interests to control the supply of bank currency and credit is to foster one of the most vicious of monopolies. But while it has long been recognized that banking is a public-service calling, we have not yet completely abolished private banking; for in many states it is still possible for individuals to engage in a general banking business subject to no regulation whatever. The numerous disastrous failures of such institutions in recent years, however, have fortunately developed an agitation against them which promises to result in their complete elimination from our banking system. Many of the large investment banking institutions are also unchartered and largely unregulated; but since they are for the most part controlled by men of large financial experience, and since they deal chiefly with other large financial interests, these private institutions do not present the same problems as do those which are designed to serve the public by means of a general banking business. The problems that arise in connection with the private investment banks are related to the possible misuse of the great power they wield through the control of the resources of capital.

is

A second reason for government supervision of banking is that it necessary for the control of the system as a whole in its relation to the entire economic structure of society. As has been indicated in the preceding chapter, individual banks cannot escape relations with other banks, their own prosperity and safety being fundamentally linked with that of the system as a whole; and as a consequence the banks themselves have been forced, in the absence of adequate government