banks would be organized by existing banks, both National and State, as stockholders. It believes that banking institutions which desire to be known by the name "national" should be required, and can well afford, to take upon themselves the responsibilities involved in joint or federated organization. It recommends that these bankers' banks shall be given a definite capital, to be subscribed and paid by their constituent member banks which hold their shares, and that they shall do business only with the banks aforesaid, and with the Government. Public funds, it recommends, shall be deposited in these new banks which shall thus acquire an essentially public character, and shall be subject to the control and oversight which is a necessary concomitant of such a character. In order that these banks may be effectively inspected, and in order that they may pursue a banking policy which shall be uniform and harmonious for the country as a whole, the committee proposes a general board of management intrusted with the power to overlook and direct the general functions of the banks referred to. To this it assigns the title of "The Federal Reserve Board." It further recommends that the present national banks shall have their bonds now held as security for circulation paid at the end of 20 years, and that in the meantime they may turn in these bonds by a gradual process, receiving in exchange 3 per cent bonds without the circulation privilege.

In lieu of the notes, now secured by national bonds and issued by the national banks, and, so far as necessary in addition to them, the committee recommends that there shall be an issue of "Federal reserve treasury notes," to be the obligations of the United States, but to be paid out solely through Federal reserve banks upon the application of the latter, protected by commercial paper, and with redemption assured through the holding of a reserve of gold amounting to 33 1/3 per cent of the notes outstanding at any one time. In order to meet the requirements of foreign trade, the committee recommends that the power to establish foreign branch banks shall be bestowed upon existing national banks under carefully prescribed conditions and that Federal reserve banks shall also be authorized to establish offices abroad for the conduct of their own business and for the purpose of facilitating the fiscal operations of the United States Government. Finally and lastly, the committee suggests the amendment of the national-bank act in respect to two or three essential particulars, the chief of which are bank examinations, the present conditions under which loans are made to farming interests, and the liability of stockholders of failed banks. It believes that these recommendations, if carried out, will afford the basis for the complete reconstruction and the very great strengthening and improvement of the present banking and credit system of the United States. The chief evils of which complaint has been made will be rectified, while others will at least be palliated and put in the way of later elimination.

The Federal reserve banks suggested by the committee as just indicated would be in effect coöperative institutions, carried on for the benefit of the community and of the banks themselves by the

banks acting as stockholders therein. It is proposed that they shall have an active capital equal to 10 per cent of the capital of existing banks which may take stock in the new enterprise. This would result in a capital of something over $100,000,000 for the reserve banks taken together if practically all existing national banks should enter the system. It is supposed, for a number of reasons, that the banks would so enter the system. More will be said on this point later in the discussion. How many State banks would apply for and be granted admission to the new system as stockholders in the reserve banks can not be confidently predicted. It may, however, be fair to assume at this point that the total capital of the reserve banks will be in the neighborhood of $100,000,000. The bill recommended by the committee provides for the transfer of the present funds of the Government included in what is known as the general fund to the new Federal reserve banks, which are thereafter to act as fiscal agents of the Government. The total amount of funds which would thus be transferred can not now be predicted with absolute accuracy, but the released balance in the general fund of the Treasury is not far from $135,000,000. Certain other funds now held in the department would in the course of time be transferred to the banks in this same way, and that would result in placing, according to the estimates of good authorities, an ultimate sum of from $200,000,000 to $250,000,000 in the hands of the reserve banks. If the former amount be assumed to be correct, it is seen that the reserve banks would start shortly after their organization with a cash resource of at least $300,000,000. As will presently be seen in greater detail, it is proposed to give to the reserve banks reserves now held by individual banks as reserve holders under the national banking act for other banks. Confining attention to the national system, it is probable that the transfer of funds thus to be made by the end of a year from the date at which the new system would be organized would be in the neighborhood of $350,000,000. If State banks entered the system and conformed to the same reserve requirements they would proportionately increase this amount, but for the sake of conservatism the discussion may be properly confined to the national banks. For reasons which will be stated at a later point, it seems likely that at least $250,000,000 of the reserves just referred to would be transferred to the reserve banks in cash; and if this were done the total amount of funds which they would have in hand would be at least $550,000,000. This would create a reservoir of liquid funds far surpassing anything of similar kind ever available in this country heretofore. It would compare favorably with the resources possessed by Government banking institutions abroad.

It will be observed that in what has just been said the reserve banks have been spoken of as if they were a unit. The committee, however, recommends that they shall be individually organized and individually controlled, each holding the fluid funds of the region in which it is organized and each ordinarily dependent upon no other part of the country for assistance. The only factor of centralization which has been provided in the committee's plan is found in the Federal Reserve

Board, which is to be a strictly Government organization created for the purpose of inspecting existing banking institutions and of regulating relationships between Federal reserve banks and between them and the Government itself. Careful study of the elements of the problem has convinced the committee that every element of advantage found to exist in coöperative or central banks abroad can be realized by the degree of coöperation which will be secured through the reserve-bank plan recommended, while many dangers and possibilities of undue control of the resources of one section by another I will be avoided. Local control of banking, local application of resources to necessities, combined with Federal supervision, and limited by Federal authority to compel the joint application of bank resources to the relief of dangerous or stringent conditions in any locality are the characteristic features of the plan as now put forward. The limitation of business which is proposed in the sections governing rediscounts, and the maintenance of all operations upon a footing of relatively short time will keep the assets of the proposed institutions in a strictly fluid and available condition, and will insure the presence of the means of accommodation when banks apply for loans to enable them to extend to their clients larger degrees of assistance in business. It is proposed that the Government shall retain a sufficient power over the reserve banks to enable it to exercise a directing authority when necessary to do so, but that it shall in no way attempt to carry on through its own mechanism the routine operations of banking which require detailed knowledge of local and individual credit and which determine the actual use of the funds of the community in any given instance. In other words, the reserve-bank plan retains to the Government power over the exercise of the broader banking functions, while it leaves to individuals and privately owned institutions the actual direction of routine.

As first presented, the bill was taken in hand by the House Committee on Banking and Currency, which, however, had not been named until a few days previous to the introduction of the measure. The committee held its first meeting on June 6; then began the active work of considering the bill on July 7; and continued regular sessions several hours each day until the beginning of September. The bill was then reported to a Democratic caucus, and after about two weeks of discussion behind closed doors was ratified, and was thereupon formally reported, on September 9, to the House of Representatives, where it was taken under debate on September 10, and ultimately forced to a passage in the House on September 18. It was then sent to the upper chamber and was taken under advisement in the Senate banking committee where extensive hearings were promptly begun and were continued until October 25. Thereafter, a month of consideration in committee ensued, and subsequently three days of caucus consideration in

the Senate, a final report to the Senate as such being rendered on December 1. Debate then began and was continued, first in the intervals of business already scheduled, then at practically con tinuous sessions until December 19 when a final vote was secured and the measure within twenty-four hours sent to conference, from which it emerged on December 22, receiving, as already stated, the President's signature on the following day.

When reported by the Senate banking committee, after its own consideration and that of the caucus, the banking bill contained no important changes in theory, as compared with the House draft, save only in the section which related to the method of retiring existing national bank circulation and of providing for the refunding of United States 2 per cent bonds. The bill, however, differed essentially from the House measure in many details, some of them of great importance, others of minor significance. The framework of the bill had been changed in no fundamental particular, but remained as it had been originally constructed. The detailed changes, taken in the aggregate, would, however, have altered in a considerable degree its scope and effect. A sketch of these changes must, therefore, be presented at this point.

As reported by the Senate committee, the bill, instead of providing for a series of reserve banks not less than 12 in number, whose stock was to be owned exclusively by existing national and state banks, provided for not less than 8 nor more than 12 of such banks, and permitted the stock, if not taken up by existing banks through subscription, to be sold to the public, or, if not subscribed for by the public, to be allotted to the United States government. It slightly altered the method of voting for directors of reserve banks, from the plan prescribed in the House bill. It relieved the national banks entering the system of the necessity of rechartering. The Federal Reserve Board was somewhat changed in composition, through the elimination of one exofficio member drawn from the administration, and was given broader and less restricted powers than had been conferred by the House bill, although none of a new or fundamental nature were added. The Senate committee, moreover, instead of making the deposit of public funds in reserve banks mandatory, left it to the discretion of the Secretary of the Treasury to deposit such funds or not as he might see fit, although the tenor of the provision on this subject was such as to indicate that the declared policy of the United States would in the future be that of making

the deposits with the reserve banks rather than with national banks as in the past.

As a method of retiring United States bonds and national bank circulation, the Senate bill provided that these securities might be annually assigned to federal reserve banks in a sum not to exceed $25,000,000, the banks to be required to purchase the bonds at par from their existing owners and to issue upon them, as security, notes exactly similar to existing national bank notes and subject to the same requirements, limitations, and obligations.

In dealing with the reserve question, it was provided that federal reserve banks should maintain 35-40 per cent instead of 33 1/3 per cent as in the House bill, and that national banks should maintain in central reserve cities 18 per cent, in reserve cities 15 per cent, and in the country 12 per cent, of demand deposits, with 5 per cent against time deposits, both the proportion to be kept in the reserve banks and the rate of transfer being altered, as compared with the House bill, in such a way as to make the process of transfer easier for the contributing banks. By way of still further lightening the burden, which, it was supposed, would be imposed upon the banks in this process of transfer, it was provided that one half of the credits to be established with the reserve banks created under the bill might be paper eligible for rediscount, while the notes issued by the reserve banks were also allowed to be counted in the reserves of these member banks. The Senate bill, moreover, extended the provisions of the so-called Aldrich-Vreeland law of 1908, and inserted in the measure a provision authorizing the Secretary of the Treasury to sell bonds for gold, should such a measure be necessary at any time to maintain the redeemableness of federal reserve notes. Lastly, the Senate bill largely altered the provision which had been made in the House for the collection of checks and drafts at par throughout the country. While under debate in the Senate, the bill underwent some further alterations, none of which, however, materially changed its more important aspects as already described. Such clauses as were inserted were intended mainly to clarify the language or to add further safeguards which had been found or thought to be necessary here and there as the work proceeded.

Little needs to be said of the debate in the Senate. Much of it was distinctly partisan in tone, only an occasional argument