they raised that rate didn't it check the rise in the value of our wheat-didn't we have to offer more wheat for their gold to get it?

Mr. ECKELS. Wheat continued to rise in price.

Mr. NEWLANDS. But would it not have risen more in price if it had not been for that raise of the discount in the rate of the Bank of England?

Mr. ECKELS. No, I do not think so.

Mr. NEWLANDS. Didn't that raise make gold harder for us to get and wheat easier for them to get?

Mr. ECKELS. No, I think it made the wheat harder to get, because they had to pay more for the money to get it with.

Mr. NEWLANDS. And, on the contrary, we wanted gold instead of wheat; that would make us offer more wheat to get gold, would it not? Mr. ECKELS. Yes, if conditions were reversed, I suppose that is so. Mr. NEWLANDS. I agree with you, that if England raised the rate of discount to 5 per cent we could only get it by making the use of gold more profitable here.

Mr. ECKELS. And making what we have more desirable there.

Mr. JOHNSON. I respectfully submit, Mr. Chairman, that the time of the Comptroller is valuable to us as well as to himself, and that in this examination of him there ought to be a fair division of time among the members of the committee. I have gotten through with what I had to ask, and I submit that the gentleman from Nevada has exhausted his time and that other gentlemen should now be allowed to ask questions. The time is limited.

Mr. NEWLANDS. The committee has been exceedingly courteous to me, and I am very much obliged for the courtesy. It seems to me that this is a most important question. Everybody admits the candor and the sincerity and ability of the Comptroller. We are here for information and not here as partisans, and it seems to me that we can make no inquiries so pertinent as the sufficiency of the gold stock in this and other countries for the reserves of banks.

The CHAIRMAN. This is not a meeting for general inquiry.

Mr. NEWLANDS. Upon this very question I insist I am confining myself to the question. I would like at some future time to pursue this inquiry, when convenient to the committee, for half an hour or an hour longer, and I trust it will not swell into the four or five days to which the chairman has alluded.

The CHAIRMAN. I have no doubt but that it will swell into four or five days, however.

Mr. NEWLANDS. I have doubt of it. I have doubts whether it assumed the proportions the chairman has mentioned upon the other occasion.

Mr. ECKELS. I will be very glad to come before the committee at some future time to discuss that question. Of course you understand that this is not my field; that is the field which should be occupied by the Secretary of the Treasury, unless it is brought in in connection with that which I think is essential to putting the country in a condition for a proper banking measure. I repeat my former statement, that unless these other things are gotten out of the way a banking bill simply relieves us of a large inconvenience and some loss, but that it can not accomplish a permanent good until we put ourselves on a basis of not having the Government issue credit currency, whether it be in the shape of paper or depreciated silver. If thought best I would at some future time be very glad to continue the discussion of this and kindred questions involved in our financial situation.

BRANCH BANKS.

Mr. Cox. I would like to ask one question of the Comptroller. To get back to the question of branch banks, which we were discussing this morning, if I have got your idea about that, you would try to supply the scarcity of money at certain times by branch banks of large banksisn't that it?

Mr. ECKELS. Yes. The reason, Mr. Cox, that in these communities independent banks can not be established is because they have not the necessary surplus capital for that purpose, and therefore must depend on outside aid.

Mr. Cox. I appreciate fully the remarks you made about that.

Mr. ECKELS. But they could import capital from large outside banks through such branches. These branches could be conducted very much more economically than independent banks in those communities, as the investment of money in capital would not be necessary. Mr. Cox. I appreciate your idea very fully.

Mr. ECKELS (Continuing). And the general banking machinery would be found to be cheaper, and therefore the money rates would be cheaper.

Mr. Cox. You are working at the same thing I am.

Mr. JOHNSON. I think the answer is somewhat misleading when taken in connection with an answer the Comptroller made to a question I asked him that the more inexpensive the notes are to the banks, the more likelihood there will be of these agricultural communities having a plenty of money.

Mr. ECKELS. Anything consistent with safety which tends to cheapen the rate of cost to institutions which are issuing money benefits the people who are getting that money, as it means for them lessened rates of interest and more investible capital.

Mr. JOHNSON. For instance, the lack of profits might deter a bank from being established in a certain community, whereas, if there was a greater profit in circulating notes a bank would be established there.

Mr. Cox. Let me draw your attention to the state of facts that exists. Take the rural districts of my country. Their credit consists in the real estate and property. That is what they have now. If you establish a branch bank from one of the large banks and they require certain bonds and stocks convertible into cash any day upon the market, can that possibly give our folks any relief?

PROVINCE OF COMMERCIAL BANKS.

Mr. ECKELS. I think if the branches are established in such places and it is found that the people there are individuals who pay their debts and have bankable assets which can be converted at any time, there will be no difficulty about their borrowing. Right here permit me to say, in this connection, Mr. Cox, that a commercial bank can not take commercial deposits and invest those commercial deposits in fixed loans and investments without ultimately breaking the bank. The province of savings banks and trust companies is fixed investments, while the province of commercial banks is the conduct of daily commercial business.

Mr. Cox. I appreciate that very much; but all through that country is a system of State banks without issue. They take their mortgages and make their loans, and most of them are made on the question of security, without any collateral whatever. It is personal security.

Now, when you establish your branch bank, would it not be better, under all the circumstances of the case, to leave those communities alone, under the State regulations, to control their own matter?

Mr. ECKELS. Of course if a community would not support a branch bank the bank would not stay there.

STATE BANKS.

Mr. Cox. My question is this: Each community judging of its own wants and necessities, would it not be better to leave those communities under the State regulations to establish their own institutions?

Mr. ECKELS. I think, so far as I know, that nobody undertakes to interfere with State regulations of State banks or anything of that kind, except in the matter of note issue. The regulation of note issues is based upon the ground that at present, at least, the Government is primarily, or ultimately, responsible for the redemption of the notes. The demands of trade and commerce are such that there would be a serious inconvenience, even though no loss might arise, if the banks of each State issued their own different character of moneys.

Mr. Cox. Your idea and mine is the same on one proposition-that this issue ought not to be based on bonds.

Mr. ECKELS. I think I said that I thought the correct banking principle was to issue bank notes against bankable assets. In this matter, however, you are obliged to deal with this practical fact, that the average business man in this country has never known anything but a currency based on securities. A new currency system must at the outset be completely enthroned in the confidence of the people. Because of this you can not undertake to substitute in its entirety a wholly unsecured currency at the start for a currency that is secured, but ultimately I think the point could be reached through gradual processes, just as any other thing is done, by which the largest portion of the banking currency could be issued against credit and be as readily accepted by the people. It would of course require a high order of banking and a high grade of assets.

Mr. Cox. I appreciate that very much, but let me draw your mind to this proposition: Suppose a bank is organized in my State under State authorities with the right to issue its notes under proper restrictions— we will assume proper restrictions are established-do you think it possible that any State could put its notes out over its counter unless as well secured as any other circulation out to-day?

Mr. ECKELS. I think, Mr. Cox, there is great deal of unnecessary fear about State bank note issues, but the fact that it does exist is the fact you have to reckon with. I have no doubt that just as the good State banks in New York, Louisiana, Indiana, Ohio, and Illinois and elsewhere maintained the payment in gold of their notes when permitted to issue them, they now would do the same thing, and I have no doubt the State would throw about them every possible safeguard as far as regulation and safety are concerned. But here is a country of vast extent, embracing many different States that with the different systems established would tend to create a constant inconvenience without giving in return any adequate resulting benefits.

Mr. Cox. Assume that your idea is correct. Inconvenience would exist and want of confidence in that circulating medium. Now, then, whom does that hurt?

Mr. ECKELS. Why, it would hurt your own people most of all, because it would withdraw from them the credit extended to them by

those people who have capital they wish to invest and who are doing business with them in the knowledge that the return received will be exactly in kind and character of the thing loaned.

Mr. Cox. Is it a part of this Government to take care of the credit of my people?

Mr. ECKELS. It is in a general way, in not permitting it to be unnecessarily injured.

The CHAIRMAN. In estimating the amount of redemption money needed in any banking system in any country can the estimate be made with reasonable accuracy on any other facts than the actual doing of the thing proposed by the banks?

Mr. ECKELS. They would arrive at it the same way as actuaries in insurance companies arrive at the question as to how much they should charge on policies.

CREDIT CURRENCY.

Mr. SPALDING. I have listened with a great deal of interest to you, and I should judge-I want to see whether I am right-that at the present time you would not recommend an issue, or a banking bill that would allow the issue, of notes on a credit basis entirely on the assets of the bank?

Mr. ECKELS. Not wholly; no.

Mr. SPALDING. You have stated the reasons. I wanted to see whether I had the idea.

The CHAIRMAN. Just as safe as guarantees of bonds?

Mr. ECKELS. I think it amounts to the same thing.

Mr. SPALDING. For instance, the assets of the bank are how held for the depositor, and if there was an issue of credit currency it would take away the assurance of the depositor.

Mr. ECKELS. The only difficulty would be in having the minds of the depositor and the note holder always kept right. It must be remembered that there have been 5,060 national banks established, and there have been but 330 bank failures. Nobody has lost anything through a bank note.

Mr. SPALDING. Because they are guaranteed.

Mr. ECKELS. But national banks have not failed because of their having bond securities preventing loss to note holders, but because they have been well conducted; and I imagine if these banks had issued against assets with the same good management there would not have been any more failures. The only difference would have arisen from the public having felt the same assurance of safety in the notes of the banks. A change in the matter, of course, requires the reeducation of the public.

REDEMPTION AGENCIES.

Mr. HILL. Some years ago the national banks made the redemptions themselves. Was it a success or a failure?

Mr. ECKELS. I take it, from the changing of the law, that it did not operate well.

Mr. HILL. Do you think it could be made successful at the present time?

Mr. ECKELS. I would not be surprised if under proper circumstances there might be redemption agencies, but they would make redemption more expensive than it is now.

Mr. HILL. In that respect it would be disadvantageous. It would require a larger reserve fund, would it not?

Mr. ECKELS. Probably.

Mr. SPALDING. Most of the bills, except Mr. Brosius's bill, recommend the issuing of notes on the assets of the bank, and that is the reason why I ask the question-because we are discussing these particular bills.

Mr. ECKELS. I regret that I am now compelled to go, but I will appear before the committee at another time. The committee thereupon adjourned.

COMMITTEE ON BANKING AND CURRENCY, Washington, D. C., Monday, February 1, 1897. The committee met at 10.30 a. m. Members present: The Chairman (Mr. Walker) and Messrs. Brosius, Johnson, Van Voorhis, McCleary, Fowler, Lefever, Spalding, Calderhead, Hill, Cox, Stallings, Black, Newlands, and Hendrick.

Hon. James H. Eckels, Comptroller of the Currency, appeared before the committee and resumed his statement begun on January 28, 1897.

STATEMENT OF HON. JAMES H. ECKELS, COMPTROLLER OF THE
CURRENCY-Continued.

Mr. Cox. Mr. Comptroller, to get at the cardinal principles you have in your mind for banking, as I understood at the commencement of your statement, the first is to keep the Government loose entirely from the redemption of the notes?

Mr. ECKELS. Yes.

Mr. Cox. And throw that upon the banks to redeem their notes? Mr. ECKELS. Yes; after the Government has gotten rid of its obligations.

Mr. Cox. You assume the Government has first disposed of its obligations and then redemption shall be made by the banks; that is the first principle?

Mr. ECKELS. Yes; in gold.

Mr. Cox. Either through the banks or a proper agency established by law?

Mr. ECKELS. That is, the banks shall be responsible for the redemption in gold of all promises to pay which they issue.

Mr. Cox. And you do that through the banks and not through the Government at all. That is the first principle you have announced? Mr. ECKELS. Yes.

Mr. Cox. The next point, as I understood you, as the basis of circulation you would take at least a considerable part of the assets of the bank?

Mr. ECKELS. I think that gradually that point could be reached, but it could not be at the outset.

Mr. Cox. At the outset, then, you would have to have some other basis?

Mr. ECKELS. Either the guaranty of the Government or a basis of security, although, as I announced, I believe that the issuing of notes against credit is the theoretically correct principle in banking. The principal difficulty in adopting such a course at the outset lies in the fact that the people are not educated to handling and believing in a currency not secured by a deposit.