3. Aldrich Plan. At the suggestion of the National Monetary Commission (p. 230), a plan for the reform of present banking conditions was drawn up by Nelson W. Aldrich, in January, 1911. The plan is as follows:

There shall be formed a banking institution known as the National Reserve Association of America. This National Reserve Association shall receive a charter for fifty years, shall have its head office in Washington, D.C., and shall be the principal fiscal agent of the government. Its capital shall be $300,000,000.

Only national banks may subscribe to the capital stock of the National Reserve Association. A national bank having a capital of at least $25,000 may subscribe to an amount of the National Reserve Association stock equal to 20 per cent of the capital of such national bank.

No individual or private corporation other than a national bank shall own stock of the National Reserve Association.

The country shall be divided into fifteen districts. In each district shall be formed Local Associations.

A Local Association shall consist of at least ten banks, and its aggregate capital and surplus shall be at least $5,000,000.

The National Reserve Association shall be governed by a Board of forty-five directors. The Secretary of the Treasury, the Secretary of Commerce and Labor, and the Comptroller of the Currency shall be ex-officio members of the Board. Each of the fifteen districts shall elect one director. Twelve other directors shall be elected by the banks in the fifteen districts subscribing to the National Reserve Association stock and located throughout the fifteen districts. Each bank shall cast a number of votes equal to the number of shares held in the National Reserve Association. The twenty-seven directors thus elected shall in turn elect twelve more directors, "who shall fairly represent the industrial, commercial, agricultural, and other interests of the country, and who shall not be officers of banks. Directors of banks shall not be considered as officers." (Revised edition of the Aldrich plan, Oct., 1911.) The directors

shall be divided into three classes, holding office for one, two, and three years respectively. No one who shall be a member of any state or national legislative body can become a member of the Board.

The Local Associations shall be governed by boards of directors elected by the banks that form the Local Associations.

The functions of the National Reserve Association shall be as follows:

To receive deposits of the United States government and the national banks, members of any Local Association. No deposits shall be received from individuals or private corporations. No interest shall be paid on deposits.

To purchase and sell government or state securities, securities of foreign governments, gold coin or bullion.

To hold the cash of the United States government.

To transact all the fiscal business of the government.

To rediscount notes and bills of exchange for the banks belonging to the Association.

To fix the rate of discount, which shall be uniform throughout the United States.

To make loans.

To deal in bills of exchange on foreign countries.

To establish bank agencies in foreign countries.

To issue circulating notes. National banks may retain their present outstanding circulation, but whenever a bank retires its circulation, it shall lose the right to reissue notes.

"All note issues of the Reserve Association must be covered to the extent of at least one third by gold or other lawful money, and the remaining portion by bonds of the United States or bankable commercial paper as herein defined or obligations of the United States." The notes constitute a first lien upon the assets of the National Reserve Association.

A weekly report is to be made by the Reserve Association to the Comptroller of the Currency. The report shall be made public. (See National Monetary Commission, Document No. 784.)

II. PROPOSED CHANGES IN THE PRESENT SYSTEM OF ·

BANKING

A more conservative plan is to adhere to the national bank system in the main as at present organized, with such modifications and amendments as will correct the existing evils. The proposed amendments concerned with the general commercial functions of banking are as follows:

1. Branch Banking. At present the national banks are not allowed to have branches. The business of a national bank must be transacted "at the office or banking house located in the place specified in its organization certificate." (U. S. Revised Statutes, Sec. 5190.) An exception is made, however (Sec. 5155), in regard to those state banks which had branches and which have been converted into national banks. At present there are only four such national banks with branches, all recently converted from state banks. (Annals of the American Academy of Political and Social Science, Nov., 1910, p. 30.)

According to the amendment here proposed, the national banks are to keep their present status, but they are to be allowed to establish branches in the smaller towns throughout the country. The main bank would hold the reserves as required by law, and would direct the operations of its branches, sending or withdrawing funds to the different localities as the need of trade might require.

These are methods employed by most foreign countries. England has 129 great banks with 5500 branches. The Bank of France has 392 branches. The Imperial Bank of Germany has 320 branches. Canada has 29 banks with 2200 branches. The ten banks of Scotland have 1065 branches. (Cf. Annals, Nov., 1910, p. 60.)

The establishment of branch banks would obviate many of the defects of the present system. It would grant banking facilities to districts too poor to support a bank; it would stimulate enterprise in industrial pursuits; it would absorb the capital that at present lies hoarded in idleness; it would grant

accommodation to customers trading in different sections of the country; it would indirectly remedy the rigidity of note circulation, as the main bank could loan its notes at the branches and redeem them at the main office — there would be no need of transporting capital to the branches for the redemption of the notes; it would bring about a chain of mutually helpful banks and do away in part with the evil of isolation; it would limit the amount of reserves if combination were made between the weaker and the stronger banks; it would prevent in great measure the congestion of money in special localities; it would lower and equalize the interest rate of money.

Notwithstanding these many advantages, there are many who object to branch banking, and their objections are mainly of the following nature:

1. Branch banks would draw away all the money from the small towns and use it in large. cities. (Practical Problems in Banking and Currency, p. 263.)

2. Large city banks would send so much money into the small towns through their branches and would lend at such low rates that existing banks could not make a living.

3. If branches were permitted, all the banks would be consolidated into a gigantic trust, so that nobody could get any money except on terms dictated by a few powerful magnates. We do not want a great money power that might become a vast political power in this mighty republic." (C. A. Pugsley, in Practical Problems, p. 305.)

4. Branch banking tends to subvert free institutions. (Practical Problems, p. 265.)

5. The branches would be without capital and would be free of taxation.

2. Government Guarantee of Bank Deposits. Another plan that claims to furnish an adequate remedy for the evils of our present system is that recently widely advertised as the Government Guarantee of Bank Deposits.

It is claimed that the immediate cause of all money panics that have ever existed has been the loss of confidence on the

part of depositors in the banks holding their deposits. In times of prosperity, confidence is prevalent everywhere. Without hesitation individual depositors place and leave their money in the hands of bankers, and banks place and leave their deposits in reserve banks; but let there appear the slightest indication of weakness on the part of any banking institution, any slightest indication of inability to meet demands for money deposited, and at once a panic arises and spreads with lightning rapidity. A run is made on a bank; the bank closes its doors; the contagion spreads; there is a scramble on the part of banks to secure their reserves, on the part of corporate and individual depositors to secure their deposits; money is gathered in and hoarded; stagnation falls on all the financial and business world, and the spectacle is seen of all the 24,000 banks in the country actually closing their doors and going out of business. Such was the picture offered in the panic of October, 1907.

Now, if the evil could be met in its initial cause, if that cause could be obliterated, there would be no resultant evil. If a plan could be adopted that would do away with that panicky fear of the depositors, that wild, unreasoning dread for the safety of their deposits — a plan that would prevent the senseless scramble for and hoarding of money-that plan would afford a remedy for money stringencies and money panics such as our country witnesses periodically.

Such a plan, it is claimed, exists in the government guarantee of bank deposits. Let such a guarantee exist, and then no depositor will doubt the security of his deposit, nor will he seek to obtain possession of it for its greater safety.

The government guarantee plan, conceived as a remedy against the present evils, refers to national banks. It is thus outlined: "It is proposed that Congress shall by suitable legislation, to be administered by the Comptroller of the Currency advised by the Secretary of the Treasury, provide for an initial assessment to be levied and collected upon the capital stock of all national banks, equal to a specified percentage upon the average deposits of each bank for the preceding year. This assessment