134. COMPARATIVE DATA ON DISTRICTS1 Territory Covered Me., N.H., Vt., Mass., R.I., Conn. N.J., Del., eastern Pa. Ohio, western Pa., northwestern W.Va., D.C., Md., Va., N.C., S.C., remainder Ala., Ga., Fla., eastern Tenn., southern Ia., southern Wis., Mich. (except penin- Kans., Nebr., Colo., Wyo., extreme Tex., remainder N.M., southern Okla., 'Journal of Political Economy, XXII (1914), p. 1008. 135. SUPERIORITY OF DISTRICT OVER CENTRAL BANK PLAN' By J. LAURENCE LAUGHLIN The legislative struggle over the bill gathered mainly about the question of central control. On the one hand, owing to a current belief that a control over crèdits was possessed by the larger banks of New York City, there were many who regarded government control of banking credits as the only means for securing equality of treatment. This attitude was a part of the present-day tendency to press for increasing governmental interference with trade and industry. While there was opposition to a central bank of private capital and of private management, there was more or less support for a central bank owned and controlled by the government. Thus, although there was a well-preserved tradition in the Democratic ranks (based on ignorance of the real services of the Second United States Bank, and which did them little credit) against a central bank, and although Democrats were supposed to dislike a centralization of political power, yet the opposition to the plan of the National Monetary Commission was clearly due, not so much to fear of a central bank, as to the fear of a privately capitalized central institution which might be controlled by the "interests." On the other hand, sensible men of all parties realized that it would be impracticable to allow government officials, often political appointees, to do the actual work of technical banking, to grant loans, to manage resources and investments-in short, to introduce the government into the banking business. Political control was obviously as dangerous as private financial control; and it would have been destructively inefficient. The solution of the matter finally adopted was, interestingly enough, centralization by districts; that is, a centralization intended to prevent scattering of reserves was obtained by establishing in each district an institution itself quite similar, in powers within its jurisdiction, to the National Reserve Association of the Monetary Commission. That is, the government was saved from going into the banking business by granting local centralization with capital and management supplied by the banks, and yet federated under a common authority in order to establish governmental direction and unity of purpose. In its essence this plan retained the workings of local I • Adapted from "The Banking and Currency Act of 1913", Journal of Political Economy, XXII (1914), 310-12. self-government, together with the operation of technical banking by those who supplied the capital, under general direction. This final adjustment which secured safe and efficient methods, as contrasted with the chaotic proposals which might have been adopted, will be a cause of permanent congratulation. It is to be observed, moreover, that the solution adapted to our conditions, in which a widely scattered system of individual banks had to be retained, must be original with us. In no other country were the conditions the same. The relation of a Central Bank in European states to other banks was not one based on the existence of a system of individualistic and numerous banks carrying on independent operations. Therefore, while retaining self-management of privately owned banks, co-operation was obtained by Reserve Banks in local districts under management by bankers, while country-wide and uniform action was gained by governmental direction through a Federal Reserve Board. The difficulty of sectional differences of interest working against each other would, nevertheless, have to be met in the practical workings of any plan. If there had been one central institution, pressure would have been brought upon the central management to help out one section of the country at the expense of another. Under a system of regional banks each section gets the support of its own resources first of all, an arrangement by which sectional antagonism is reduced to the minimum. In addition, when one section is in trouble beyond its own powers of recovery, then by aid of the Reserve Board one Reserve Bank may come to the aid of another. Such a practice, it is to be noted, has been going on in an extra-legal way in previous years whenever banks of a large center have sought assistance from New York. Such a practice was natural and inevitable. In the new law such practice is openly recognized and legalized. 136. REASONS FOR CHOICE OF DISTRICTS1 The Organization Committee has issued the following statement as a summary of its operations and conclusions: The Federal Reserve Act directs the Reserve Bank Organization Committee to "designate not less than eight nor more than twelve cities to be known as Federal Reserve cities," to "divide the continental United States, excluding Alaska, into districts, each district to contain only one of such Issued April 2, 1914. Taken from Monthly Letter of National City Bank, New York, April, 1914. Federal Reserve cities," and to apportion the districts "with due regard to the convenience and customary course of business." The Act provides that the districts may not necessarily be coterminus with any State or States. In determining the Reserve districts and in designating the cities within such districts where Federal Reserve Banks shall be severally located, the Organization Committee has given full consideration to the important factors bearing upon the subject. The Committee held public hearings in eighteen of the leading cities from the Atlantic to the Pacific and from the Great Lakes to the Gulf, and was materially assisted thereby in determining the districts and the reserve cities. Every reasonable opportunity has been afforded applicant cities to furnish evidence to support their claims as locations for Federal Reserve Banks. More than 200 cities, through their Clearing-House Associations, Chambers of Commerce, and other representatives, were heard. Of these, 37 cities asked to be designated as the headquarters of a Federal Reserve Bank. The majority of the Organization Committee, including its Chairman and the Secretary of Agriculture, were present at all hearings, and stenographic reports of the proceedings were made for more deliberate consideration. Independent investigations were, in addition, made through the Treasury Department, and the preference of each bank as to the location of the Federal Reserve Bank with which it desired to be connected was ascertained by an independent card ballot addressed to each of the 7,475 National Banks throughout the country which had formally assented to the provisions of the Federal Reserve Act. Among the many factors which governed the Committee in determining the respective districts and the selection of the cities which have been chosen were: First The ability of the member banks within the district to provide the minimum capital of $4,000,000 required for the Federal Reserve Bank, on the basis of 6 per cent of the capital stock and surplus of member banks within the district. Second. The mercantile, industrial, and financial connections existing in each district and the relations between the various portions of the district and the city selected for the location of the Federal Reserve Bank. Third. The probable ability of the Federal Reserve Bank in each district, after organization and after the provisions of the Federal Reserve Act shall have gone into effect, to meet the legitimate demands of business, whether normal or abnormal, in accordance with the spriit and provisions of the Federal Reserve Act. Fourth. The fair and equitable division of the available capital for the Federal Reserve Banks among the districts created. |