Mr. ECKELS. I think in the popular mind with us, Mr. Walker, that which tests the solvency of a bank is its ability to redeem its indebtedness to its depositors-its ability to meet the demands of the depositors. Under other circumstances technically a true test of the solvency of a note-issuing bank is its ability to redeem its notes.

The CHAIRMAN. Is it not a fact that in a business community the thing that is believed to test the solvency of a bank, with those familiar with banks and banking, are the deposits and the demand that the depositors make upon a bank; but in the popular mind, say, the average taxpayer, the thing that rests in his mind, as a matter of risk, is the currency that the banks issue? Isn't there a distinction?

Mr. ECKELS. I do not think in the United States or any country where there is an absolute deposit of securities that there is any thought at all devoted to the redemption of the note issues.

The CHAIRMAN. By the depositors?

Mr. ECKELS. By the noteholders. They look to the Government. But where, as I say, the banks maintain the responsibility themselves of redemption of their note issues the popular mind would undoubtedly be constantly on the lookout as to whether or not the banks were able to redeem the notes issued.

The CHAIRMAN. Is it not a fact that the banks are required to put up the 5 per cent redemption fund, and that the banks themselves, through that fund, currently redeem their notes, and then the Government sells the bonds to redeem the notes of insolvent banks?

Mr. ECKELS. That is the fact.

The CHAIRMAN. So that the fact that the Government finally redeems the note does not cut any figure with the bank, because that is a final redemption, and the 5 per cent redemption fund is held and used for the current redemption.

Mr. ECKELS. I think, Mr. Walker, in the popular mind here there is not a single thought devoted to the redemption of bank notes, either current or permanent, by the man possessing them. He is aware of the fact that the Government attends to that part of it, because it is provided in the law that if the redemption fund is not maintained a bank without being notified can be closed up and the Government take possession and redeem the notes, recouping itself from the bonds deposited with the Treasurer.

The CHAIRMAN. Isn't it true that the larger the volume of business done by a larger number of individuals in the same territory under the same system, the less percentage of redemption coin is needed? Mr. ECKELS. Yes.

Mr. HILL. I understood you to say, Mr. Eckels, in response to Mr. Walker's question, that the larger the country the less coin would be required for redemption purposes.

The CHAIRMAN. The less percentage of coin.

Mr. HILL. Yes; the less percentage.

Mr. ECKELS. The same character of banking facilities

Mr. HILL. I want to ask you, if the country is divided into redemption districts, where will be the greatest demand for redemptions, from within the redemption district in which the bank is located or without it? Mr. ECKELS. I think without it.

Mr. HILL. Then the more extensive the country is the greater the quantity of coin required, rather than a less quantity?

Mr. ECKELS. I don't think so, with the improvements of banking facilities equally distributed.

Mr. HILL. Why would that affect the case at all? If the redemp

tions that are to come to banks, that are called for by the banks, are from without the redemption district, why is it not true that the greater the territory without the redemption district, the larger will be the calls? The CHAIRMAN. The point is, it is impossible to have redemption territorial districts where the system covers a given territory. You can not make redemption districts. Banks must be allowed to choose among the large commercial cities the city in which they will redeem their notes.

Mr. HILL. I don't think that would change the fact at all. It would seem to me the exact reverse is true.

REDEMPTION UNDER THE SUFFOLK SYSTEM.

Mr. ECKELS. I don't think, Mr. Hill, that under the Suffolk system, as the number of banks increased and the territory was enlarged, there was a corresponding increase in the amount of coin used for redemption.

Mr. BROSIUS. Mr. Comptroller, is it not a fact that the need for bank currency in any country, other things being equal, diminishes in exact ratio to the extent of the deposits of the banks of that country?

CHECKS CREATE A CURRENCY.

Mr. ECKELS. Yes; because people, if they become bank depositors, use checks, and they create a bank-deposit currency.

Mr. BROSIUS. They create a currency themselves.

Mr. ECKELS. Yes; the only difference being that the bank deposit currency is not a currency which passes rapidly from hand to hand, as a bank-note currency does. For that reason, it does not in all instances take the place of a bank-note currency.

Mr. BROSIUS. I did not mean to imply that it took the place of it in the sense of superseding it. I only meant that where there is a habit of depositing in banks, so that all the available funds in a community go out of the pockets of the people into the general use of the public, that less and less amounts of bank-note currency are needed in such

cases.

Mr. ECKELS. Yes; that is so.

Mr. BROSIUS (continuing). Because all the funds of the community are utilized for public uses. Now, let me ask another question. Is it not a fact that with the progress of the evolution of banking agencies and facilities the habit of depositing the current funds of communities in banks grows, and that therefore the deposits in the banks of the country increase from year to year?

Mr. ECKELS. That is undoubtedly true. I have several times taken occasion to say that with the increase of facilities of exchange through banks of deposit and discount you diminish the use of bank-note currency, and also of gold currency or silver. After all, bank notes and gold and silver play so very small a part in the innumerable transactions in the business world that they can not be considered to compare with the other methods which are used for carrying on business. Mr. BROSIUS. That is the philosophy of it.

Mr. ECKELS. That is the fact of it.

DEMAND FOR ADDITIONAL NOTE CURRENCY LOCATED.

Mr. BROSIUS. Does it not find additional illustration in the fact that in those sections of the Union in which there exists the greatest demand

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for additional bank-note currency there is the least amount of deposits in the banks?

Mr. ECKELS. Yes.

Mr. BROSIUS. In the cities of the North and in the North generally and the Middle States, where capital abounds and they have the habit of depositing, they are not demanding additional bank-note currency, are they?

Mr. ECKELS. No.

Mr. BROSIUS. In the South and West, where they do not deposit so generally, and where there is a dearth of deposits in the banks to be used for public purposes, they are demanding additional bank-note currency?

Mr. ECKELS. Yes.

Mr. FOWLER. Is it a proof that they have no wealth?

Mr. BROSIUS. No.

Mr. ECKELS. The desire for an inflation of the currency is not confined to any single locality or any single class of people. There has always been everywhere a desire to have a large volume of currency, but the needs of the South and the West for better note-issuing functions on the part of the banks are greater than in the East and the Middle West and the New England States.

The CHAIRMAN. Is it not true that where the banks issue currency freely where they are located the currency carried in the pockets of the people there actually increases, while being a less percentage to the total banking capital-that is to say, that the percentage of currency to the deposits and to the banking capital may be less, while the total currency in circulation may be more, because loans are made in currency?

Mr. ECKELS. Yes.

The CHAIRMAN. Now, Mr. Eckels, preparatory to taking up the bill H. R. 171, if you will turn to page 98 of your report

EFFECT OF REDEEMING IN GOLD ONLY.

Mr. Cox. Before you take up the regular bill I want to ask Mr. Eckels one question. Mr. Eckels, I want to go back and call attention to a question we were discussing yesterday and try to make the question understood. When you were speaking of the redemption by the banks and taking it off of the Government, and that they should redeem in gold, a question drawn out by my friend there, to a certain extent, was the thought that if the gold was needed in this country the banks could get it, and if it was needed in other places and we had a surplus it would flow to them?

Mr. ECKELS. Yes.

Mr. Cox. Now, suppose the banks had to redeem in gold, and gold only, and there was at a time a demand for a considerable sum of gold out of this country. By your answer it would naturally take its course to fill up what you might call a vacuum there. Now, would not there be a danger that gold might go to a slight premium, or a considerable premium, and if it did go to a premium, even a small one, would not that be an invitation and would not it have the influence to rush the depositors into the banks for the redemption in gold, so that they would get the profit of that premium?

Mr. ECKELS. Of course there is always the liability of having a condition of the public mind that may upset the best system, but this thing is certain. that wherever the responsibility has been placed on

banks of looking after these matters, unhampered by unnecessary Government restriction, they have been able to do it. As they have all the machinery, they undoubtedly would protect themselves.

Mr. Cox. But you admit that there is some danger along that line?

DISTURBANCES POSSIBLE UNDER THE BEST SYSTEM.

Mr. ECKELS. Under the very best system possible there is apt to be a condition of the public mind which for the time may create disturb

ances.

Mr. BROSIUS. Could gold go to a premium under any circumstances as long as banks continue redeeming in gold?

Mr. ECKELS. No; the banks themselves might have to pay it.

Mr. BROSIUS. It does not make any difference what the banks have to pay for it, because any man taking his note to the banks can get gold for it, and as long as that is the case gold will not go to a premium. Mr. Cox. But the question lies in the fact that the banks have to pay a premium for the gold.

Mr. ECKELS. They would probably have to pay a higher price for it. Mr. Cox. But the apprehension in my mind is that the depositor would rush for the gold if it was at a premium.

Mr. ECKELS. They would not, however, buy the gold back from the depositors. The depositor who would take that gold would hoard it. The CHAIRMAN. We will now take up my bill H. R. 171, but before we proceed to that I will ask you to turn to page 100 of your report for 1896. The nine recommendations therein made by the Comptroller are as follows:

SUGGESTED AMENDMENTS OF THE BANK ACT.

[Annual Report of the Comptroller of the Currency, 1896.]

It is one of the duties imposed by law upon the Comptroller of the Currency that Je shall, in his annual report to Congress, indicate such amendments to the bank act as would in his judgment improve the national-banking system. In discharge of that duty, I submit for consideration the following suggestions, which it is believed, if embodied into law, would be of material public benefit:

First. That the loans and discounts of any bank to its executive officers and employees be restricted in amount, secured by proper collateral or by additional signature or signatures of financially responsible persous to the notes taken, and made only upon the approval of the board of directors, a written record thereof being kept.

Second. That no loan shall be made to a director who is not an executive officer of the bank, except either upon a deposit of collateral security or upon a note given therefor bearing, in addition to the director's own signature, the signature or signatures of one or more financially responsible person or persons.

Third. That upon a day in each year, to be designated by the Comptroller, the directors of national banks shall be required to make an examination of the affairs of the bank with which connected and submit to the Comptroller of the Currency a report thereon upon blanks to be furnished for such purpose.

Fourth. That the assistant cashier, in the absence or because of the disability of the cashier, be authorized to sign the circulating notes and to sign and make oath or affirmation to reports of condition of a national bank.

Fifth. That some class of public officers be empowered to administer the general oaths required to be taken by the national-bank act.

Sixth. That in places having a population of less than 2,000 inhabitants national banks shall be permitted, under regulations to be made by the Comptroller of the Currency and approved by the Secretary of the Treasury, to be organized with a capital stock of not less than $25,000, and with a corresponding reduction in the amount of bonds required to be deposited with the Treasurer of the United States. Seventh. That national banks be permitted, under such regulations and restrictions as shall be made by the Comptroller of the Currency, and approved by the Secretary of the Treasury, to establish branch banks in towns and villages where no national

bank is established and where the population does not exceed 1,000 inhabitants, such branch banks to have the right to receive deposits, make loans and discounts, and buy and sell exchange, but in no case to be permitted to issue circulating notes other than that of the parent bank. It shall in all respects be considered as a part of the parent bank, and in each case where such branches are maintained the Comptroller shall receive in the reports of the central bank a statement properly sworn to and attested of the condition of its branches. He shall also have the right of separate and independent examinations, and he may, whenever he deems it necessary, require, before granting the right to any bank to maintain branches, that the paid-up capital stock of such bank be increased to an amount to be fixed by him with the approval of the Secretary of the Treasury.

Eighth. That the semiannual tax levied on account of the circulating notes of national banks be reduced so as to equal but one-fourth of 1 per cent.

Ninth. That the Comptroller of the Currency be authorized to issue to nationalbanking associations circulating notes to the par value of the bonds, when the market value thereof is equal to the par value, deposited by them with the Treasurer of the United States to secure such notes.

The CHAIRMAN. I wish to ask the Comptroller whether if every recommendation he therein makes was heeded by Congress and the recommendations enacted into a law, if that would relieve the condition of the embarrassment of the Treasury at all?

PURPOSE OF THE COMPTROLLER'S RECOMMENDATIONS.

Mr. ECKELS. I think I have repeatedly stated, Mr. Walker, that a banking bill that did not get rid of the demand obligations of the Government would not relieve the immediate necessities of the Treasury Department, but these recommendations, some of which are designed to improve the administrative method of banking, and others to increase banking facilities, would improve the general conditions of the The CHAIRMAN. Existing conditions?

Mr. ECKELS (continuing). The general conditions of the business interests of the people. But even with these there would always be the danger of recurring periods of embarrassment by the unrelieved condition of the Treasury in not having its demand obligations canceled.

The CHAIRMAN. Then the point of the recommendations is to improve and benefit the existing system without specially relieving the Treasury situation.

Mr. ECKELS. As already stated by me, they would improve existing conditions of banking, and thus they might to a small extent relieve the Treasury. They would not, however, give it the relief that it ought to have. I believe they would add immensely to the general benefit of the people. If they did not appear to me of such benefit I would not have suggested them.

The CHAIRMAN. That is the point I wanted to bring out. Well, that would be a benefit to the people. Now, if you will turn to page 17 of my argument made on February 17, 1896, in support of bill H. R. 171

Mr. ECKELS. Before you do that, Mr. Walker, I wish to say that in this same report I discussed, in connection with these matters, the absolute necessity of the Government getting rid of its demand obligations in order to grant the total relief to which I think the people are entitled. I do not wish to be put in the attitude of making recommendations which I think could be of no benefit. They are recommendations which are designed to accomplish the best thing possible to relieve the banking situation. Whether or not the legal tenders are retired, these recommendations would be of benefit.