places them in a position of advantage which might subject the national banks to unduly severe competition, has been widely discussed, but it is thought that if such a danger exists it can be largely avoided by exercising adequate care with reference to the admission of banks to membership. No banks will be admitted unless they are sufficiently strong and well managed to insure their being effective working members of the system, conducting their business upon a high plane and observing all the requirements of sound management. While it is not intended to duplicate state examinations more than necessary, or to impose an undue burden of expense upon member banks, the Board's supervision is expected to be such as to insure the maintenance of stable and generally uniform conditions of competition among all the banks of the system, whether state or national. The circular and regulations provide for reliance upon state bank examinations to the fullest extent that is possible, and for the making of co-operative arrangements between state and national authorities with reference to such examinations. This will lessen the expense of overseeing the system, and will remove the possibility, which might otherwise exist, that state banks might be constantly under examination by various classes of examiners.

There has been no effort to forecast the number of banks that will probably enter the system in the near future under the provisions of the circular and regulations. The Board states in its circular that it is more concerned with the quality of the members than with their number; and it is prepared to see a slow, steady increase in the number of banks, each institution admitted being granted membership only upon satisfactory evidence that it will be a source of strength to the system.

It is probable that state bankers who have what to them seems good ground for postponing action will continue to find reasons for delay for some time to come, and will not bestir themselves to join the system until a fresh motive is afforded them for so doing. If the rediscount plan operates as it is expected to, state banks will get the benefit of it indirectly by finding themselves able to dispose of their paper on favorable terms in the open market without necessarily going to a federal reserve bank for accommodation. It is rather to be expected that the motive tending to lead state bankers to enter the system will be found in the clearing function. If the clearance provision in the Federal Reserve act proves successful, it may be expected that business will be transferred to the member banks by those who

will appreciate the immense advantage open to them as a result of the provision freeing them from the conditions to which they have heretofore been subjected in regard to domestic exchange.

163. A STATE BANKER'S VIEW OF THE FEDERAL RESERVE SYSTEM'

BY FRANK N. BRIGGS

There are many reasons why state banks and trust companies should act with great deliberation in reference to entering the new federal reserve banking system, and I will undertake to mention a few of them very briefly.

First, the law is made for national banks only. Until it shall be so amended as to be helpful and not detrimental to state banks and trust companies they should remain out of the system.

Second, those entering the new system will probably be subject to double examinations, both state and national, double reports, conflicting laws, unusual expenses, and a curtailment of privileges now enjoyed under state laws.

Third, at the present time state banks and trust companies are able to supply needs in their various communities for the development and promotion of business that cannot be supplied by national banks. This then brings us face to face with the best protection of the public. and the fullest development of the country. The new law appears to me to have been especially constructed and is now being administered largely for the benefit of big business and big undertakings. It has no functions thus far developed that appeal personally and directly to the small business man, merchant, small farmer, small stock-raiser, small manufacturer, or plain ordinary citizen. Of course, by aiding the large institutions the system will probably indirectly aid the small ones.

In the fourth place commercial paper is the great and important item to be used for rediscounts at the federal reserve banks. This can be issued and is issued only by large concerns moving great quantities of merchandise or products and receiving quick returns on the same in cash. Theoretically this is fine, but unfortunately all of the business of the country is not and cannot be turned over inside of thirty, sixty, or ninety days. There should therefore be some financial insti

1 Adapted from an address before the Colorado Bankers' Association, Chicago Banker, January 30, 1915, pp. 7-8.

tutions in the country that can take on at least a limited amount of such business which is sound, safe, and secure, but not as quickly liquid as the preferred classes mentioned in the reserve bank act.

Fifth, customers of country banks know very little about making statements, and it would be very difficult for a country bank to meet the "red-tape" requirements of the federal reserve banks when discounts are needed. A statement must be filed for the maker of each note offered for rediscount, certain application blanks must be filled out and filed, and a great deal of necessary routine gone through before a loan can be secured or paper rediscounted. I believe the small member banks and non-member banks must rely, as heretofore, largely upon their correspondents in the larger centers to supply them with funds as needed for emergencies. Fortunately, such banks do not need accommodations very often.

Sixth, it would be very dangerous to place the entire banking business of the country under the control of a federal board at Washington. No other free country that I know of has ever succeeded in forcing all banking institutions to come under absolute governmental control.

Is it not unwise to take on the risks and the obligations entailed by becoming members of the reserve system when it is not necessary to do so? While there are benefits and advantages to those banks that are members of the system, these are more or less counterbalanced at this time by the risks, curtailment of privileges, limitation of functions, added expenses, and other disadvantages offered by the system.

State banks and trust companies are in a very fortunate position, both for themselves and for their patrons, in being able to stand aside during the formative period—we might say the experimental stage-of the new national banking system and steady the financial ship while the national banks trim their sails and adjust their craft to suit the current of the new stream. These twenty thousand or more state banks and trust companies, remaining serene and undisturbed, are able to take care of their business in the usual way, co-operating at all times in a most friendly and patriotic spirit in bringing the new national system to its highest efficiency and most perfect state of usefulness.

164. THE ATTITUDE OF THE FEDERAL RESERVE BOARD'

BY CHARLES S. HAMLIN

We are anxious that the state banks generally shall come into the system-some of them seem to be holding aloof and waiting. The Federal Reserve Board has done everything in its power to liberalize the regulations for the admission of state banks. I want to say frankly that this system has succeeded, and will succeed, whether the state banks come in or not, but the bigger the base the stronger the edifice, and I believe it highly desirable that all state banks join the system. About thirty of the large, strong banks have joined, and there is quite a waiting list now of those who desire to come in, but I want to make the prediction that if the state banks do not come into the federal reserve system, sooner or later they will have to establish a system of their own, and if they go to their state legislatures and ask authority, the first question will be: "Why have you not entered the federal reserve system?" Such a system would require special legislation in several states, and would require years to put through. I earnestly hope in the near future to see the state banks coming into the federal reserve system, and I want to hold out this thought to them, that if they come in now they will come in easily, because their assets are liquid; but the time may come when the state bank wants to come in quickly, and the bank may find its assets are not in a liquid condition and it will take time and trouble to get in.

Our regulations have been very moderate. We have interfered very little with the powers of the state banks. The state banks which come into the system can still loan on real estate when national banks have never been permitted to do that except to a limited extent under the Federal Reserve act. They can come in with all their branches and do business side by side with national banks that are not authorized directly to have branches. We even accept the examination of the state authorities where we find that those examinations are sound and good; that, certainly, is a great privilege for the state banks. We even have gone so far that we say to the state bank that, once in, you can withdraw on a year's notice; I think that is a privilege the state banks must appreciate. But we do not believe that one of them would look back to see whether the door was open or closed after it had once entered the system.

'Adapted from an (unpublished) address before the Western Economic Society, November, 1915.

Sometimes a bank president may say, "Why should a state bank come in, if it is true that the system is a great success and we can never have any more panics?" Now I think it is true that we will never have any more panics, but that does not mean that individual state banks will not have trouble in the future as they have had trouble in the past. And when they do come for I believe there will be a long line of state banks at the first touch of stringencythen they must take the last place in the line to be examined, and it will take longer. But if you still ask, What use it is, because we can never have a general conflagration again? a man might just as well get up when there is a motion to put in a system of hydrants in a city, and say he read the other day the report that the hydrant systems over the United States are so efficient that the whole United States could now never be burnt up. I think that would be almost as sensible an answer as the one we occasionally receive. Now, when times of stringency and tight money come, banks will not be able to get the assistance outside of the system that they have previously secured, even from the national banks.

I believe, however, that this question will be largely settled by the customers of the bank. If a man were going into a small town to start an elaborate business, requiring much capital and credit, and he were to find two state banks there, one belonging to the federal reserve system and one not belonging to it, would it take that man, if he were prudent, long to decide where to put his deposits? I believe that the people of the United States in the long run will see to it that the banks they deal with sooner or later become members of the federal reserve system.

165. NEW YORK'S NEW STATE BANKING LAW1

BY THEO. H. PRICE

In April, 1914, the state of New York passed a new bank act, designed for the most part to enable the state institutions to compete with the banks in the Federal Reserve system.

The most important of these changes in the law have to do with reserves and acceptances.

Adapted from an article on "Commerce and Finance" in the Outlook, CVI (1914), 813-15.