by United States bonds and, under the general supervision of the Federal Reserve Board, of all Federal Reserve notes, the chief officer of which Bureau shall be called the Comptroller of the Currency and shall perform his duties under the general directions of the Secretary of the Treasury." (National Bank Act of June 3, 1864, as amended by the Federal Reserve Act of December 23, 1913.)

"The Comptroller of the Currency, with the approval of the Secretary of the Treasury, shall appoint examiners who shall examine every member bank at least twice each calendar year and oftener if considered necessary. The examiner making the examination of any national bank, or of any other member bank, shall have power to make a thorough examination of all the affairs of the bank and in doing so he shall have power to administer oaths and to examine any of the officers and agents thereof under oath." (Federal Reserve Act, December 23, 1913.)

"It is the duty of the Comptroller to make an annual report to Congress, giving a summary of the condition of every national bank together with such special information as may be regarded of importance, whether in connection with national or state banks." (National Bank Act of June 3, 1864.)

"Every association shall make to the Comptroller of the Currency not less than five reports during each and every year, . . . . which reports shall exhibit, in detail and under appropriate heads, the resources and liabilities of the association at the close of business on any past day to be by him specified, and shall transmit such reports to the Comptroller within five days after the receipt of a request or requisition therefor from him. And the Comptroller shall have power to call for special reports from any particular association whenever in his judgment the same shall be necessary. Any association failing to make and transmit any such report shall be subject to a penalty of one hundred dollars for each day after five days that such bank shall delay to make and transmit any report." (National Bank Act, as amended March 3, 1869.)

"A Federal Reserve Board is hereby created which shall consist of seven members, including the Secretary of the Treasury and the Comptroller of the Currency, who shall be members ex officio, and five members appointed by the President of the United States by and with the advice and consent of the Senate." (Federal Reserve Act, December 23, 1913.)

The Federal Reserve Board has very broad powers, the chief of which are as follows:

a) To examine at its discretion the accounts, books, and affairs of each Federal reserve bank and of each member bank and to require such statements and reports as it may deem necessary. The said board shall publish once each week a statement showing the condition of each Federal reserve bank and a consolidated statement for all Federal reserve banks.

b) To permit, or, on the affirmative vote of at least five members of the Reserve Board, to require Federal reserve banks to rediscount the discounted paper of other Federal reserve banks at rates of interest to be determined by the Federal Reserve Board.

c) To suspend for a certain limited period any reserve requirements specified in this Act: Provided, That it shall establish a graduated tax upon the amounts by which the reserve requirements of the Act may be permitted to fall below the level specified.

d) To regulate through the Bureau under the charge of the Comptroller of the Currency the issue and retirement of Federal reserve notes. e) To exercise general supervision over said Federal reserve banks. (Adapted from Federal Reserve Act, December 23, 1913.)1

ΙΟΙ.

THE MENACE IN GOVERNMENT CONTROL OF BANKING
BY ELMER H. YOUNGMAN

The banking bill introduced in the Senate on June 26, 1913, is in my judgment one of the most dangerous and unsound measures ever introduced in the American Congress.

It virtually proposes to concentrate fifteen or twenty billions of banking credit under the control of a Federal Reserve Board, thus making possible what is now impossible under our system of numerous small banks with their system of ownership and management widely scattered, namely, the complete domination of credit by political bosses or by the financial powers to whom such bosses are subservient.

What a rich prize that would be as a bone of contention between rival political bosses and rival financial interests—the power to control credit and fix the rate of discount in every corner of the country. Outside the Russian Empire, where the Imperial Bank is a department of the State Treasury, no such politico-financial despotism exists.

This country does not need and will not tolerate a central bank (even if called a National Reserve Association) dominated by big bankers and those whom they control.

Nor does it need nor will it tolerate a political bank (even if called a Federal Reserve Board) controlled by the ruling political party. The founders of this Government sought to avoid placing the purse and the sword in the same hands. The Secretary of the Treasury and the Comptroller of the Treasury make their reports to the Speaker of the House of Representatives, not to the President. But For full treatment of Federal Reserve System see chapter vii.

2

Adapted from an editorial in the Bankers' Magazine, (New York, LXXXVII, 1915), 138-40.

here is a proposal to place in the hands of the President the power to give or to withhold credit, which has been aptly defined as the lifeblood of commerce.

Such a power is too great to be placed in the hands of any man, and its exercise by him, even through his appointees, might become a source of grave danger.

Neither should this power be entrusted to a central bank (or National Reserve Association, so-called) nor to any other board of any kind whatsoever and howsoever composed; for no board-whoever its members may be can sit at Washington or any other place and determine justly or accurately the amount of credit, the kind of credit, or the rate that should be paid for such credit.

Nor can these matters possibly be determined by Congress, nor by any department of the Government.

The only one who has sure knowledge of the needs of currency and credit is the man or the community that wants it.

The only sure means of testing the demand for currency and credit is the bank, which has its finger on the business pulse of individuals and the community. Banks are the scales that weigh the credit of communities and individuals, and are therefore the only instruments that can properly gauge and supply the demand for credit and currency.

When I take my note to a bank, and lay it down, I buy credit from the bank, just as when I go to the fish-dealer and lay down my money I buy fish. For the bank to dictate to me (and whether this is done by the Government, a board, or any other agency whatever, it comes to the same thing) what I should get in exchange for my note—that is, the kind of credit or money I should have, whether bank notes, coin, paper certificates, or checks-would be just as impertinent as for the fish-dealer to try to give me codfish when I asked for mackerel.

Whether I shall obtain credit at all is a matter between me and my banker, because he is the only man in the community who has the machinery for testing my ability to pay.

What kind of credit (or currency) I shall swap my own credit for, that is my affair purely.

All that the Government ought to do is to see that the notes are properly engraved so as to render counterfeiting difficult, and to see that the banks provide the coin and the machinery for promptly paying their notes.

The power to determine the amount and kind and rate of credit is one which no community should yield up to outside domination. President Wilson's proposal to set credit free is really a proposal to enslave it to take it away from twenty-five thousand banks, with their many thousand shareholders, their millions of depositors, and their thousands of officers, each in touch with local conditions, vitally interested in local prosperity, and in close personal touch and sympathy with those who deal with the banks, and to place this power in the hands of a political board at Washington.

102. GOVERNMENT VERSUS PRIVATE CONTROL1

The opposition of the bankers to the Administration Currency Bill is the old cry against government regulation which the railways made ten years ago, when the Hepburn Rate Bill was passed.

The bill provides that general control of the entire national bank system shall be in the hands of seven men, three of the seven being the Secretary of the Treasury, the Comptroller of the Currency, and the Secretary of Agriculture. The other four members are to be chosen by the President of the United States, with the advice and consent of the Senate. It is mandatory upon the President that at least one of his four appointees shall be an experienced banker.

Here, then, is the whole trouble. The case is that of private control versus Government control. To ask that the bankers shall select the Federal Reserve Board is like asking that the railways shall choose the Interstate Commerce Commission. It is perhaps not unnatural that the bankers should be reluctant to let the control pass out of their hands; but is it quite fair for them to claim that what is proposed is to substitute "political control" for business control?

If the Federal Reserve Board, appointed by the President, with the advice and consent of the Senate, is "political," then the Interstate Commerce Commission is "political" and the Supreme Court is "political."

If the American people can trust the President to choose their Supreme Court for them, the bankers can certainly trust him to choose the Federal Reserve Board. A President who would prostitute the Federal Reserve Board to his own base political and partisan advantage would endeavor to so prostitute the Supreme Court and would deserve to be impeached.

I

Adapted from an editorial in the Outlook, CIV (1913), 794–95.

No political, social, financial, or industrial system was ever devised without its most important element being confidence in human honor. If the American system ever reaches a point where the President cannot be trusted, in the full light of publicity and with the supervision of the United States Senate, to appoint our Federal judges, our interstate commerce commissioners, and our bank supervisors, it will be time to abandon that system and to adopt some form of benevolent despotism.

103.

B. Regulation of National Bank Operations

CAPITAL, SURPLUS, AND SHAREHOLDERS' LIABILITY No association shall be organized within a city the population of which exceeds fifty thousand persons with a capital of less than $200,000. In cities having less than fifty thousand and more than six thousand inhabitants the capital must be at least $100,000. In any place with a population of not more than six thousand the capital may be only $50,000. In any place the population of which does not exceed three thousand, banks may be organized with a capital of only $25,000. (Adapted from National Bank Act as amended March 14, 1900.)

"Each association shall, before the declaration of a [semiannual] dividend carry one-tenth part of its net profits of the preceding half-year to its surplus fund until the same shall amount to twenty per centum of its capital stock." (National Bank Act, June 3, 1864.)

"The stockholders of every national banking association shall be held individually responsible for all contracts, debts, and engagements of such association each to the amount of his stock therein, at the par value thereof in addition to the amount invested in such stock."

"No Federal Reserve Bank shall commence business with a capital stock of less than $4,000,000. The stockholders [the member banks] shall be entitled to receive an annual dividend of six per centum on the paid-in capital stock, which dividend shall be cumulative. After the aforesaid dividend claims have been fully met, all the net earnings shall be paid to the United States as a franchise tax, except that one-half of such net earnings shall be paid into a surplus fund until it shall amount to forty per centum of the paid-in capital stock of such bank." (Federal Reserve Act, December 23, 1913.)

104. RESERVE REQUIREMENTS

For the purpose of the regulation of reserves the national banks are divided into the following classes: (1) Banks in Central Reserve Cities New York, Chicago, and St. Louis; (2) Banks in Reserve