The relation of bank loans to bank capital is left entirely, or almost entirely, to the judgment of the banks themselves; and, as a result, we have this condition: Certain banks, with larger bank capital than is necessary, when you take in view the amount of their deposits, and others where the amount of the bank capital is less than should be required; and we all know that the real security which the depositors have, in addition to the securities and negotiable paper in which their deposits are invested by the banks, is the bank capital and surplus and the bank reserves.

As an evidence of this unhealthy condition I have only to state that when the panic came on the aggregate deposits in all the banks of the country-national banks, State commercial banks, State savings banks, and trust companies-was about $13,000,000,000; and against that extraordinary amount of deposits there was a reserve in the banks of only $1,000,000,000, or 8 per cent; and that if you exclude the savings banks as not requiring any considerable amount of reserves and estimate, as is the fact, that the deposits in all the commercial banks, State and national, amounted to $10,000,000,000, the reserves equaled

only 10 per cent. But even if there had been an average reserve of 10 per cent in all the commercial banks of the country, national and State, the unhealthiness of the condition would not have been so apparent.

But we find the greatest disproportion between the reserves existing in State banks and the reserves existing in the national banks. The average reserve of the national banks at that time was 18 per cent; the average reserve in the State banks, the commercial banks, was less than 6 per cent, and yet, as the Senator from Oklahoma [Mr. OWEN] So well observed, the State banks outnumber the national banks and have twothirds of the bank capital of the country and nearly two-thirds of the deposits of the country. The danger point, then, in our whole system of reserves is in the State banks, which outnumber the national banks and outclass them in both capital

and deposits.

So also as to national banks. Whilst the average reserve was 18 per cent, yet the manner in which that reserve was distributed amongst the various banks indicated a most unhealthy condition. Of the total reserves in all the banks, national and State, amounting to $1,000,000,000, the national banks, though inferior in number and inferior in capital and deposits, had $700,000,000 of reserves, and of that $700,000,000 of reserves over $300,000,000 was in the central reserve city banks in New York, Chicago, and St. Louis, and nearly $200,000,000 was in reserve city banks, about 300 in number, and only about $200,000,000 was in the country banks, over 6,000 in number, so that over one-half of the reserves of the country were in banks averaging less that 400 in number, in the central reserve and reserve city banks, and less than half of them were in 6,000 national banks, constituting the country banks of the United States, and whose obligations to individual depositors far ex

ceeded in amount the similar obligations of the reserve city

and reserve banks.

Now, how was that? Simply under the existing law which permits these country banks to deposit three-fifths of the reserve required by law in reserve cities and central reserve cities. The result was that over one-half of the legal reserves of over 6,000 national banks of the country was accumulated in less than 400 banks in our great cities, mainly New York, and used there for promotion and speculation. We all know the methods employed during certain seasons. The New York banks offer tempting rates of interest to the country banks for their reserve money, which they are forbidden to use locally, draw in the money, and then lend it to those who are interested in promotion and stock speculation. The spring and summer months is the time chosen for the promotion of the great industrial corporations of the country, for the promotion of great trusts, and for the increased issue of railroad stocks and bonds.

The prices go up in the market; and the faster the prices go up the greater is the demand upon the New York banks for money for speculative purposes, for it is a peculiar condition of the stock market that as the market is rising the demand for speculation increases; and that when it is going down and more favorable opportunities are presented for getting stocks at their real values, the demand for them diminishes. So it is that after the summer season is over, when the country banks require the moneys which they have deposited in the reserve cities at interest for the purpose of moving the crops of the country, when they require the small sums of $200,000,000 or $300,000,000 for that purpose, the money is not forthcoming; the banks in the reserve cities and in the central-reserve cities can not pay it to the country banks without calling in their loans; and that means a contraction of values, a slump in the

market, a local panic, and possibly a panic extending over the entire country.

We have had numerous evidences of such panics within the past ten years. A panic of that kind is almost a yearly occurrence. Sometimes it is only local in its consequences; but if those consequences are sufficiently severe and involve enough mercantile houses or brokerage houses or banks, then we find the country alarmed, and there is a general demand for money on deposit. So that whilst the average of reserves in the national banks of 18 per cent is perhaps sufficient, it is so distributed as not to make it an element of safety in any banking situation.

Now, Mr. President, this evil is very evident. The Senator from Rhode Island [Mr. ALDRICH] admits it. In a speech which he delivered when he first reported his bill in this body he used the following words:

I have already alluded to the inadequacy of bank reserves. When we compare the reserves of our banks with the reserves of similar

European institutions this inadequacy becomes painfully apparent. Senator from Rhode Island has nowhere addressed himself to "This inadequacy becomes painfully apparent," and yet the this important question, but has only addressed himself to the question of further inflating the loans of the country and aggravating and exaggerating the condition of inflation that now exists. The Senator will doubtless reply that there was no time for this, that all we could do was to address ourselves to the question of emergency. That may have been true when the Senator first presented his bill; an emergency was then on, but that emergency has passed, and the financial conditions of the country are now on the road to recovery; yet since the Senator presented his bill over four months have elapsed, and I will venture to say that he has not once called together his committee during that entire period for the consideration of this important question.

bank reserves, that "this inadequacy becomes painfully appa

66

The Senator says that he has alluded to the inadequacy of rent," and yet, with this condition of things, when this inadequacy is painfully apparent," and when he and his committee have had four months to consider this question, he brings into this body, upon a day's notice, a new measure in which no allusion is made to this unhealthy and abnormal condition, and no remedy presented.

This is of a piece, Mr. President, with the administration of the Finance Committee under the Senator from Rhode Island

during his entire administration of twelve years. During that time how many efforts has the Senator made to reform the bank act? Did he not know twelve years ago, as well as to-day, that this system of piling up the bank reserves of the country in a few cities, to be used there for promotion and speculation, was prejudicial to the safety of the country? Year before last we had a warning upon this subject, if prior to that time we had lacked information upon it.

fore the recent panic, when the Senator then, as now, was bent upon inflating the currency instead of securing upon a safe foundation the banking system of the country, that I then presented an amendment. A measure was pending in this body providing, I believe, for greater issues of currency, a larger proportion of currency upon national bonds, increasing the proportion from 90 per cent to 100 per cent-resulting, I believe, in an issue of $400,000,000 more of bank notes-and also doing away with that provision of the banking act which prevented bank notes from being retired at a rate of more than $3,000,000 a month. When this measure was pending I then presented to the Senate an amendment intended to remedy this condition In my remarks upon that occasion I regarding the reserves.

I remember in the debate in the early part of 1907, long be

said:

I have already alluded to the inadequacy of bank reserves. When we compare the reserves of our banks with the reserves of similar European institutions, this inadequacy becomes painfully apparent. Now, I wish to ask the Senator whether there is any provision in this bill regarding bank reserves?

Mr. ALDRICH. There is no provision in the bill regarding bank reserves, but there is a provision for the appointment of a commission to consider what changes shall be made in our banking laws, and I have no doubt that the subject of reserves will be one of the first questions taken up by that commission. Mr. NEWLANDS. Mr. President, I should like to ask the Senator from Rhode Island another question, and that is whether there is any provision in this bill upon which an instruction can be based to the conferees to provide that the country banks shall keep a larger percentage of their reserves within their own vaults? Would it, in the present status of the conference, assuming that this report is rejected, be within the power of that conference committee to take up the question of the reserves and report upon it?

Mr. ALDRICH. There is no question of reserves in difference between the two Houses, and the conference committee has no authority to take up questions that are not involved in differences of opinion between the two Houses.

Mr. NEWLANDS. The bill as originally passed, the so-called "Aldrich bill," had a provision regarding the reserves. I should like to ask the Senator from Rhode Island how it is that this bill includes no provision in regard to reserves? Mr. ALDRICH. The bill which went to the House from the Senate, upon which the conference committee has acted, contained no provision in regard to reserves.

Mr. NEWLANDS. But the former bill, known as the "Aldrich bill," did, as I understand it.

Mr. ALDRICH. The conference committee had no authority to take into consideration a bill which passed Congress, or either House, at a period prior to the passage of this bill.

Mr. NEWLANDS. Mr. President, I should like to ask the Senator from Rhode Island, who has been chairman of the Finance Committee, I believe, for the last twelve years, at least, whether during that time he has always been of the impression that the bank reserves of our national-bank system were painfully inadequate, and whether or not he has ever presented to that committee any measure looking either to an increase of the reserves or to a proper distribution of them?

Mr. ALDRICH. Mr. President, the Committee on Finance try to take up and consider carefully all the measures presented to them. If the Senator from Nevada, with his wide experience and great knowledge upon this subject, had presented a bill in regard to the subject, I am sure the committee would have given it careful consideration, but I have no recollection of any such bill having been presented.

Mr. NEWLANDS. Mr. President, we have here an evidence of the maladministration of the Republican party, of its utter failure to appreciate the gravity of the situation regarding national banks. We have here the admission of the chairman of that committee, who has been in charge of the Finance Committee of the Senate for the past twelve years, that the reserves are painfully inadequate, and yet during that time no effort has been made to correct this evil.

The Senator has not lacked warning regarding it. A year ago last February, long before the recent panic, when the Senator had a bill up providing, as his bills generally do, for the inflation of the currency of the country, and not for the proper regulation of banking, I offered to that bill an amend ment absolutely germane, providing that country banks should be compelled to keep at least-I believe that was the form of the amendment-three-fifths of their reserves within their vaults; but this change was to be gradually brought about within a period of ten years, so as to cause no immediate wrenching of our financial system.

That amendment was opposed by the Senator from Rhode Island and defeated; and yet within a year a new light has fallen upon the Senator from Rhode Island, and he now sees that our reserves are "painfully inadequate;" he now sees

that the distribution of these reserves is prejudicial to the banking interests of the country, and that the concentration of these reserves in a few great cities, in less than 400 banks out of nearly 6,000 banks, tends to the promotion of speculation and to the derangement of the business of the country. And yet, though the Senator was warned of it two years ago and found his realization of the warning in the panic of last fall, he presents to this body, when the emergency is over and the time for rational legislation has come, a measure simply to inflate the currency, to exaggerate still further the bank loans of the country and he does it whilst in the very speech in

which he presents the necessity of legislation he admits that this condition is painfully apparent.

At the time he presented the bill he urged the condition of emergency. He said that there was a panic upon us-for the panic at that time was not spent-and he urged his bill then as a measure of immediate relief. The force of the panic has been spent, the business conditions of the country are reviving, and we are now marching on to better conditions of business and of commerce. The Senator has had three months in which

he could call together the experts of the country, the bankers of the country, and the commercial men of the country-the economists of the country-and obtain their judgment upon this subject; but to-day, instead of presenting us an adequate measure of relief intended to cure existing abnormalities, which the Senator himself admits, he presents this measure, which is intended simply to increase in the future the inflation of bank loans, adding over $500,000,000 to the vast superstructure of credit now built up upon the narrow and tottering basis which has existed for so long a time.

Mr. President, the Senator says that the proposed commission will be charged with the duty of framing a bill; and yet I observe that the commission is to be composed, so far as the Senate is concerned, of members of the Finance Committee, the very committee which has been so derelict in duty under the leadership of the Senator from Rhode Island. I think the country will have small confidence in the results of the work of a commission so organized, when we have had absolute nonaction, apathy, and inertia in this committee under the leadership of the Senator from Rhode Island for the past twelve years. Now, what is the condition of the exaggerated bank loans? The Senator in his speech presented it most powerfully. Since 1900, in a period of eight years, according to his statement, the bank loans have increased from $5,000,000,000, if I recollect his statement aright, to $10,000,000,000; and I refer only to the bank loans of commercial banks. From $5,000,000,000 to $10,000,000,000 in eight years. How has that been accomplished? By inadequacy of reserves in the State banks and by an improper distribution of the reserves of the national banks. The Senator believes in the powers of the nation. He believes in the great interstate-commerce power of the Constitution when applied to grants.

The Senator and his party have never failed to exercise that power when a subsidy has been asked for. They never fail to exercise that power when a great and powerful corporation wanted anything from the Government. We have made land grants; we have made subsidies; we have guaranteed railroad bonds under that power, but when it comes to the question of restricting these great corporations to whom the Senator and his party would be so liberal, then he doubts our power under the interstate-commerce clause.

The Senator and his party then take themselves to that "twilight zone" to which Mr. Bryan so aptly alluded-the zone of twilight between the national powers and the State powers in which these great corporations avoid the exercise of both national and State sovereignty.

So when I suggest in this body, belonging, as I do, to the Democratic party, a party that believes simply in the constitution of delegated powers and the powers implied in the delegated powers, that banking is a matter of interstate commerce just as much as is railroading, that the transaction by which goods are transported from a point in one State to a point in another State does not vary at all from the reciprocal transaction by which money is transferred from the consignee to the consignor through the banks, and that State banks, as well as State railroads, under the interstate-commerce power are subject to the regulation of the entire Union of States, lie doubts the power. I could well understand how such an objection might come from this side of the house, with its views regarding the strict construction of the Constitution, but I can not understand how the objection can come from the other side of the house. It has never failed to exert these powers to the largest degree when subsidy or grant were concerned. Why should it hesitate to exercise them when restriction and regulation of these gigantic State corporations engaged in interstate commerce are involved?

I do not stand simply for the protection of the depositors of these banks. I stand also for the protection of the people who make loans from the banks. When you quickly draw out the money from a bank and pay it to the depositors what does it mean? It means the prostration of some man who has borrowed money from the bank, and these men are the men of energy and enterprise, who have built up the entire country. We want to protect them as well, and the best way to protect them is to prevent constantly recurring panics, to make our banking system so safe that a depositor will never think of going to the bank and demanding his money except for the current demands of his business or of his household. If we do that we will protect the borrowers of the country, the men of energy, and the men of enterprise who have made this country what it is.

Mr. President, I am aware that we are going to have some difficulty in getting a sufficiency of basic money to support this great structure of credit which we have built up. We have exaggerated our system of bank loans and we have exaggerated our system of credit money. We have $3,000,000,000 of so-called "money" in this country, only one billion and a half of which is gold. We have to-day $660,000,000 of uncovered paper money, consisting of bank notes and of greenbacks, deducting, of course, the gold which is in the Treasury as a redemption fund for the greenbacks and deducting the 5 per cent redemption fund that stands back of the national-bank notes. We have $660,000,000 of uncovered paper money. There is no country in the world-at least, no civilized country-that has so large a proportion, and we propose under this system to add to it over $500,000,000 of uncovered paper money, for, recollect, there is a difference between secured money and covered money. Covered money is the money that is covered dollar for dollar by legal-tender specie, and secured money is money that may be secured by national bonds or by county bonds or by the assets of banks. We have to-day $660,000,000 of uncovered paper money. It calls for gold, every dollar of it. We have to-day $600,000,000 of silver which has been turned by legislation into a call for gold, so that the silver to-day is simply a material upon which a promise to pay gold is stamped, and really it is as much uncovered money to-day as is the paper money to which I have alluded.

The whole British Empire has not over $200,000,000; France only $269,000,000, and Germany with a very inconsiderable amount. You will find that the Bank of England and the Bank of Germany have enormous reserves of gold, and these extensions of currency which they are permitted to make still leave a large reserve of gold in their treasury for the immediate redemption of this paper money when it is presented; and we propose to issue this vast amount of emergency currency in addition to the $660,000,000 of uncovered paper today without providing a sufficient redemption fund. Mr. President, it has been a favorite expression of almost every financial man who has spoken upon the subject during the past year that we have the worst financial system in the world. I ask if we have it who is responsible for it? What party announced itself to be the party of sound money in 1896? What party challenged the Democracy upon that question? The Republican party. It has been in full power. The Senator from Rhode Island has been in charge of this committee for twelve years, and yet during that time not a single remedial measure has been brought into this body for the correction of these evils that exist.

On the contrary, the legislation that has been brought in has simply tended to give more uncovered money, to increase the issue, to enlarge the inflation; and the effect of it has been-I will not say the purpose of it was-the organization of these great corporations, the inflated issues of stocks and bonds, the use of the hard earnings of the yeomanry of the country in every section for the promotion of the sale of those stocks and bonds upon the market. We have had every year a system of inflation in New York, followed by a period of contraction, where the public was milked every year by these promoters and speculators, and yet no effort has been made to cure this speculative condition.

On the contrary, every act of legislation has tended to increase the inflation and to increase the opportunity of these men to spoliate the country.

Then comes France, frequently alluded to, which has only $269,000,000 of uncovered paper money. It had more, it is true, immediately after the Franco-Prussian war, for it had to pay off its debt to Germany in gold and had to substitute paper money in its place, and it did so by the issue of the notes of the Bank of France.

But unlike our Government, it immediately sought to cover that extraordinary issue of paper gradually through a series of years by taking in gold and silver, and to-day as a result of their prudent management they have outstanding only $269,000,000 of uncovered paper money, whilst we have kept out our uncovered greenbacks, we have kept out our uncovered national-bank notes, and we propose now to issue $500,000,000 more of uncovered paper money.

There may come a time when the demand will come, not from depositors, but from the holders of this uncovered paper money; there may come a time when war is impending, when they will say, "We demand the redemption in gold," and then the credit of the Government itself will be imperiled, and that of course will involve the imperiling of the interests of all.

Now, I was alluding to France, which has $269,000,000. Italy stands with $150,000,000. Now I come to the South American countries, whose example I am sure none of us would wish to emulate, and we find out of a total of $4,000,000,000 of uncovered paper money, more or less, in the world, of which we have one-sixth and will have one-fourth under this system, South America has over a billion and a half, or one-third of the entire amount. Colombia has $1,000,000,000 of uncovered paper money. Brazil has $363,000,000 of uncovered paper money. Argentina has $293,000,000 of uncovered paper money. Shall we emulate the example of Argentina and of Brazil and of Colombia in our financial system?

And yet Senators make constant allusion upon this floor to the fact that the banks of Europe, the great civilized nations in the world, have a certain elasticity of issue of uncovered paper money. I have shown you how much they have out.

Mr. President, I would not wrench this system violently. I do not believe in radical reform. I believe in progressive reform. I believe we should bring about these things gradually, running over a period of five, ten, or twenty years, but we should steadily make progress toward a more perfect system of banking, one that will involve the correction of the evils, both of our national-bank system and of our State-bank system, so far as the constitutional power of the nation can be exercised.

So far as concerns the organizations of these clearing-house associations, perhaps I might differ with the action of the committee in some details, yet I think the movement is in the right direction. It accords with the theory of home government, of local self-government.

It gives the banks in a particular State or in a particular banking district, regardless of State lines, the opportunity to get together for mutual support and mutual aid, and that means of course the prevention and relief of panics. It means rules regarding the relation of loans to capital and reserves and deposits, for we will find if we only leave these matters to the regulation of the unions of banks, they will necessarily bring into their councils the best men of the banking fraternity, and their whole power and influence will be exercised in the line of good banking.

Thus far we have run too strongly toward decentralization. I would not run too far toward centralization. The organization of these clearing-house associations is, to my mind, a commendable plan. I would amplify it, however, by admitting the State banks to these organizations, and with the approval of the Secretary of the Treasury and the Comptroller of the Currency, and under certain rules and regulations as to the reserves which they shall keep and the proportion of loans to capital which they will maintain.

We might go a step further in the direction of solidifying the banking interests of the country in the line of the public safety. We might provide that the presidents of the various clearing-house associations shall meet annually in the city of Washington-there would probably be less than 100 of them-and that they should confer here upon matters of mutual con

cern. We might give them the power to select nine commissioners to constitute, with the Secretary of the Treasury as chairman and the Comptroller of the Currency as secretary, a banking commission, one from each judicial circuit in the country, who would sit permanently at Washington and act in a purely advisory way to the Secretary of the Treasury, the President of the United States, and to Congress itself.

Can there be any doubt but that the clearing-house associations would send here their best men, the best trained men, the safest men, the truest men, the men of highest character and integrity? They would be brought here in contact with Congress, in contact with the Secretary of the Treasury, with the Comptroller of the Currency, with the President of the United States, and they could be called upon at any time for information and for advice.

I would not at first give them any positive powers. I would simply have them here in an advisory way.

I am aware that this is open to the objection of government by commission. When anyone now suggests the appointment of a commission, the first outcry is " government by commission." We Americans have a way of thinking by the brand. You have only to put on a brand by some name intended to be opprobrious and many people, without thinking of the essential principles involved, condemn it because of the brand.

Whenever the word "centralization," I observe, is used upon that side of the House it is used for that purpose. It is used to summon to your aid the active opposition of members on this side of the House to measures which your side opposes. And the response is often made, when you brand a thing as a usurpation of power or brand it as centralization, it prevents many men from thinking upon the essential principles.

So recently it has been the custom to brand these commissions and to allude to their action as "government by commission." Mr. President, there is no objection to a commission properly constituted for investigation and report. There is no reason why Congress itself should restrict the membership of every commission it creates to Members of Congress.

There is no reason why commissions should not be appointed in an advisory way to collect information, to make reports, to communicate to Congress, to communicate to the President, to communicate with the Secretary of the Treasury. I submit it is much better to have this method of communication than the present condition of things, where the Secretary of the Treasury is compelled to go to New York as the only source of information when an emergency arises.

Mr. President, I was alluding to the possible formation of a banking commission which would be representative of these clearing-house associations, which would have its permanent sessions in Washington, and we could have at hand the benefits of its information at any time.

Mr. TELLER. Mr. President

The VICE-PRESIDENT. Does the Senator from Nevada yield to the Senator from Colorado?

Mr. NEWLANDS. Certainly.

Mr. TELLER. I should like to make a suggestion to the Senator as to the body that might take charge of this question. I do not know how it would strike him, but I would suggest that we might refer it to this new house of governors that we are having.

Mr. NEWLANDS. Well, Mr. President, I am inclined to think that the new house of governors was a very appropriate conference for the purpose of ascertaining what the views of the entire country were regarding the conservation of our natural resources, a question of very much greater importance than the banking question which we now have before us.

I know of no body of men so well equipped to present the views of their constituents as the executives of the various States of the Union. I think it was a very happy thought which suggested the gathering of this board of governors at Washington to consider this great question of the waste of the energies of the Republic that is going on, and to take measures for the cure of existing conditions; and I look for such a shaping of public opinion upon that subject as will result in immediate legislation.

I wish to say to the Senator from Colorado that I have as high an idea as he has of the capacity and the ability and the functions of the body to which I belong, but I recognize one fact, and that is that it is not a creator of public opinion, but that it follows public opinion; and I welcome all conferences wherever held as formulating public opinion in regard to legislation that is imperiously demanded by the country.

Mr. TELLER. I should like to suggest to the Senator that I did not underrate the governors, but as they had disposed of the great questions that they came here for, I thought we might have something else for them to do in the future.

Mr. NEWLANDS. In view of the great apathy and inertia and inactivity of the Committee on Finance under the administration of the Senator from Rhode Island during the last twelve years, I think I am entirely safe in saying that it would be very much better to intrust this question of the reformation of our banking system to the "house of governors" than to the Finance Committee of the Senate.

I stated that the Senator from Rhode Island had referred to the painful inadequacy of our reserves in a recent speech, and I stated that he had warning upon this subject. If I may be permitted, without apparent egotism, to do so, I will refer to a speech which I made over a year ago, before the recent panic, and which possibly the Senator from Rhode Island heard, for he was in the Chamber. I observe the Senator from Rhode Island is retiring from the Senate Chamber. I should like him to hear this, but inasmuch as he is turning a deaf ear to it, I will read it to the rest of the Senate. It is from a speech delivered by me February 26, 1907.

Now, Mr. President, I wish to say one word regarding the reserves of these banks. We have a system which crowds all the reserves of all the national banks of the country in New York City. That seems to me to be a vicious system, because it collects from every part of the country moneys to be used simply in speculation. When the moneys are needed in the West and in the South a contraction of the volume of money is caused in New York, and we have the stock panics which may at any time be so large in their proportion as to involve bank panics in New York and resulting bank panics throughout the United States.

Mr. CULBERSON. Mr. President

The VICE-PRESIDENT. Does the Senator from Nevada yield to the Senator from Texas?

Mr. NEWLANDS. Certainly.

Mr. CULBERSON. Noticing that the Senator from Rhode Island has returned to the Chamber, I suggest to the Senator from Nevada to reread the portion he read in his absence, as the Senator from Nevada desired the attention of the Senator from Rhode Island to it.

Mr. NEWLANDS. I will read it again.

Now, Mr. President, I wish to say one word regarding the reserves of these banks. We have a system which crowds all the reserves of all the national banks of the country in New York City. That seems to me to be a vicious system, because it collects from every part of the country moneys to be used simply in speculation. When the moneys are needed in the West and in the South a contraction of the volume of money is caused in New York, and we have the stock panics which may at any time be so large in their proportion as to involve bank panics in New York and resulting bank panics throughout the United States.

Now, let us see how much of these reserves can be placed in New York. There are sixteen reserve cities provided for by the national banking act. National banks in these cities are required to keep 25 per cent of their deposits in cash, but they are allowed to deposit onehalf of such cash in banks in New York City and no other city.

The re

I should add two other cities, St. Louis and Chicago. New York is the central reserve city in the United States. sult is that all of these national banks in the sixteen reserve cities may really have only cash reserves of 124 per cent, provided they deposit the remaining 12 per cent in the national banks of New York City. Then, how is it with the other cities that are not reserve cities, the country banks, the banks of the smaller cities? They are compelled by law to keep a reserve of 15 per cent. They must have reserves equal to 15 per cent of their deposits. But they are permitted to deposit three-fifths of their supposed cash reserve in the reserve cities. result is that under the law the national banks of the smaller cities are compelled to keep on hand only 6 per cent of their deposits, and the remaining three-fifths of the 15 per cent may be deposited in the reserve cities, and then the national banks in the reserve cities can deposit one-half of these moneys in the New York City banks under the system to which I have referred.

The

So the tendency is to deposit in New York one-half of all the reserves of all the national banks in the United States

I have just shown that in New York City, just prior to the time of the recent panic, about one-half of the entire reserves of all the national banks of the country were in New York City.

So the tendency is to deposit in New York one-half of all the reserves of all the national banks of the United States. It seems to me that is an unfair advantage to give to New York. It has the effect of building up New York at the expense of her great commercial rivals. It is not fair to Boston; it is not fair to Philadelphia; it is not fair to Baltimore, or to Richmond, or to Atlanta, or to New Orleans, or to San Francisco.

When you add to these enormous reserves deposited in the New York banks the command of the life-insurance moneys of the country, you can see how the entire financial system of the country is made to play into the hands of New York and to promote this speculation, which has been breeding panics year after year.

It is this system of crowding the cash reserves of the national banks of the entire country into New York that has led to this overcapitalization of railroad securities, of trust securities, of watered stocks and bonds, that have been placed upon the entire public and upon which the public are compelled to pay interest and dividends.