Mr. ECKELS. Unquestionably, figuring upon the same basis- Mr. ECKELS. Yes; basing it on the past. Whether or not the tax provided in the bill would produce that amount is a question of mathematics. Mr. FOWLER. Do you not think that all the banks of the United States, both State and national, would organize under this bill, having as they do the power to take out currency to the par of the bonds held by them, and that there is only a tax of one-fourth of 1 per cent imposed upon the bonds which bear 2 per cent, leaving a net 13 per cent to the bank and giving to the bank at the same time the right to issue credit currency? Mr. ECKELS. I am sure I could not say what they would do. Mr. ECKELS. It is certain they will do the thing which seems to them, everything considered, will bring to them the greatest profit. Mr. FOWLER. Has it not proved true in the past, whenever a bank can make more than 1 per cent net, it has taken out circulation? Mr. ECKELS. Yes. Mr. FOWLER. Therefore you can infer that where they made one and three-quarters per cent profit they would naturally be glad to take out circulation? THE BALTIMORE PLAN. Mr. ECKELS. Yes; but they would not decide this thing on one question. They would not decide it wholly on circulation, but they would decide it upon other matters which enter into consideration as to what would be the best thing for them. They would consider how their depositors would look at it and how it would affect those features of the banking business which to-day are a great source of profit to them. It would depend not on one circumstance, but upon a good many. When the plan known as the Baltimore plan was presented to the American Bankers' Association, which met in Baltimore two or three years ago, it was adopted almost without a dissenting voice, and it was accepted by the newspapers and approved generally by them throughout the country. Yet when that plan was embodied in a bill and presented to Congress it was abandoned almost as unanimously. Mr. Cox. And there was not a member of the committee who supported it. Mr. FOWLER. There was no provision made there for current redemption, which was the essential Mr. ECKELS. They apparently left the principle. The question of details was not considered. Mr. FOWLER. The principle is unsound without the counterpart, which is current redemption in gold coin. I should have gone a good way from it, as far as I could from it, without that policy. Mr. ECKELS. I have always maintained in discussing the question of bank notes, that the test was not only the promise of the bank to redeem in gold, but its ability to redeem and to do so on demand in whatever quantities asked for. Mr. FOWLER. Well, the national banks in the past, as I understand you, have seized upon the opportunity of taking out circulation whenever it paid them above 13 per cent; that is true? Mr. ÉCKELS. Yes, they have taken out circulation when there has been a margin of profit in so doing. CIRCULATION ISSUED TO PAR VALUE OF BONDS. Mr. FOWLER. Would it not be a great advantage not to tie up a single dollar of the capital of the bank and take out the same amount of circulation that the banks have of bonds? Would it not be an advantage especially to the Western banks, where the rates are high? Mr. ECKELS. There certainly would be more profit to the bank in issuing up to the par of the bonds and in addition having the right to issue its credit currency. On the other hand you have your banks surrendering the bonds bearing 4 or 5 or 6 per cent for a bond which only draws 2 per cent. Mr. FOWLER. But they are paid the market price; therefore they lose nothing. Mr. ECKELS. Oh, yes; they do not lose anything except in the lessening of future interest. Mr. FOWLER. But they gain in the lessening of future interest because now they tie up the difference between 90 cents and the premium on the bonds; besides, they are only realizing one per cent, and under this bill they are getting one and three-quarters per cent. Is not that true? Mr. ECKELS. Well, that is also a matter of mathematics, whether they would gain or lose. Mr. FOWLER. But as a matter of fact, is it not true to-day that when you take into consideration the difference between 90 cents and the premium on the bonds, a great portion of the United States can not issue those notes at all, on account of the rate of interest in their respective localities? Mr. ECKELS. Well, they do not. Mr. FOWLER. Now, under this bill they would not tie up a single dollar of their capital and they would have a net 12 per cent on the notes taken out against the bonds. Mr. ECKELS. Yes; I say that is a matter of mathematics; you might raise the price of bonds in the market Mr. FOWLER. Two per cent bonds? Mr. ECKELS. You might by permitting a larger issue raise the market price Mr. FOWLER. Is there any probability of 2 per cent bonds rising so much above par as to practically reduce the rate of interest and therefore make the profit much less than 13 per cent. Mr. ECKELS. Well, I should hardly think so, but there might be. Mr. Cox. In order to understand that The CHAIRMAN. Mr. Fowler has the floor. Mr. FOWLER. I will yield to Mr. Cox for a question. Mr. Cox. As I understand, the proposition that is embodied in that idea, and let me see if I am correct, is that in the redemption of the outstanding bonds with those 2 per cent bonds you propose to pay the premium on the old bonds and put that into new bonds, convert them into new bonds? Mr. FOWLER. Yes, sir. Mr. Cox. I wish to understand that, and that is all. Mr. FOWLER. The market price of to-day, or at the time the bill is passed, being taken as a basis and continued during the funding of the debt, so that there can be no movement in the price of the bonds to the injury of the Government, and as a check against any such bull movement by speculation, the Government itself has a large quantity of 2 per cent bonds for disposition to the banks in the redemption of the demand obligations of the Government. Do you not think that interests so vast and important to the people as our finances and currency are should not be left, in carrying out these financial and currency reforms, to the caprice of politics, but rather separated from them? Mr. ECKELS. I think everybody would agree, Mr. Fowler, that these things ought not to be left to the caprice of politics, but then would come in the question of what constitutes politics. Mr. FOWLER. Well, I am simply asking about the principle, now. Mr. ECKELS. I do not think if you go to anyone and say, "Ought this monetary principle to be decided as a political question," but he would answer, "No;" but he would also couple with the answer what he thought constituted politics. A CONSULTING BOARD. Mr. FOWLER. Do you not think, therefore, that the supervision of these great interests had much better be left to a consulting board whose term of office will be such as to insure a continuous body than to a single individual whose ideas might possibly be at variance with the financial policy or be prejudiced in favor of some section, or be hopelessly ignorant of the subject when he came into office? Mr. ECKELS. I think it is a great deal more essential to get a sound scientific bill than it is to establish a board. I think if you have a bill which in and of itself is good and whose provisions are not complex, that it would not be very hard, whether it was by one, two, or three persons, to enforce the provisions of that bill. The whole thing turns upon the character of the act. I do not see any objection to having a consulting board, if the officer who is charged in the first instance with the duty of carrying out the act has only to consult with the board. I am not a great believer in divided responsibility. Mr. FOWLER. It would not be any more divided than in the case of the President and his Cabinet, would it? Mr. ECKELS. Except that the President has the decisive voice in the matter, and under your plan no one man has. As I say, if you have a consulting board, with somebody at the head of it who as the last resort has the decisive act, there could not be any objection to it; but where you divide the responsibility among a number of people, each having equal power, you are liable to not work out as good results as where you have simply a consulting board instead of a single authoritative head. Mr. FOWLER. Do you not think as a matter of fact if it should turn out some such bill was adopted, all the banks of this country, now amounting to about 10,000, State and national, representing approximately about a billion dollars of capital and about five billion dollars of deposits, would be far better under the supervision, when a system of branch banks is included, as you recommend, of three men, than under the supervision of one man who may leave his office the next day after the Administration comes in-we hope you will not-or may die in the midst of a bank panic or in any great crisis, but leaving the office practically without a man efficient and able to conduct it? Mr. ECKELS. Well, it would depend entirely upon the character of the act under which these men were operating. It is not so difficult to administer an act if the act is not too complex, and, I take it, when you get a bill which you will hope to get, that is as near perfection as possible, it will not be a difficult bill to administer, and, therefore, one man given the power, with the right to call in others in consultation who are suggested for that purpose, would do, I believe, a great deal better than seven men, all being given equal power. Mr. FOWLER. There are three here and they do not have equal power. Mr. ECKELS. Well, whatever the number, they are given equal power, and thereby is established a divided responsibility. I do not believe as much has been accomplished by permanent commissions in the conduct of bureaus as has been accomplished by bureaus with one person in charge. INSURING DEPOSITORS AGAINST LOSS. Mr. FOWLER. Inasmuch as you have stated that in your judgment the supervision of the banks should be controlled by the Government, I take it you approve of paying to the Government a tax for the redemption of notes in case of banks failing? Mr. ECKELS. Yes. Mr. FOWLER. If the actuary of the Treasury can inform you, after an examination of the records, that the national banks since 1863, by paying one-twelfth of 1 per cent per annum upon the deposits into an insurance fund, could have protected all depositors, do you not think it would be advisable to have the national banks of the United States insure their depositors against loss? Mr. ECKELS. I do not believe it is any business of the Government to guarantee bank deposits. Mr. FOWLER. I do not say the Government; but I say, do you think it would be a wise thing to do? Mr. ECKELS. That is a business proposition which the individual banks should determine, and I would not undertake to express an opinion upon it. Mr. FOWLER. In your judgment, what do you think? Mr. ECKELS. I do not think that I care to answer the question. There are a number of institutions which have been created for the purpose of insuring county treasurers' funds and all that sort of thing. It is a business matter, and it is not a matter with which the Government ought to deal. Mr. FOWLER. Let me ask you this, then. If the fund of 5 per cent, which you said in your judgment was more than ample to redeem the notes of the banks failing, was paid into the Government, and if the banks of the United States actually did insure the depositors against loss by paying a necessary amount to an insurance company, do you not believe that bank panics would be practically ended? Mr. ECKELS. No; because you would have to completely reform a large portion of mankind. You can have all the precautionary meas ures you may desire, but fear at times will manifest itself among the people as to the safety of their property. You can not do everything by law, and you ought not to attempt it. BANK PANICS IN OTHER COUNTRIES. Mr. FOWLER. Do you know how long any bank panic has lasted in Scotland? Mr. ECKELS. They are free from panics. Mr. FOWLER. They never last to exceed three or four days, or a week at the outside? Mr. ECKELS. No; they are very short. The people have the utmost confidence in their bankers, and they are all educated up to the point of using banks. Mr. FOWLER. And a credit system of notes? Mr. ECKELS. Yes; but it is a matter of education. Mr. FOWLER. Do you know whether or not they are in the habit of having bank panics in Canada as they have them here in the United States? Mr. ECKELS. They have not so far under their present system, but they have not had the same things to contend with. They have not passed through the same business conditions we have, and they have kept business questions separated from political ones. Mr. FOWLER. Have they not had booms at Toronto and Victoria the same as we have had in the United States? Mr. ECKELS. But they have not had half the bad financial laws nor half the speculation we have, nor half the overtrading, nor half the undue extension of credits. Mr. FOWLER. It is mostly in the bad banking laws? Mr. ECKELS. Much of it here is chargeable to bad financial laws, but not all. The bad financial laws we have had have aggravated all these things, and at least in one instance brought them to a head. The silver-purchasing act of 1890 centered the many causes which resulted in the panic of 1893. Mr. FOWLER. Do you know what the experience of Germany has been since 1875, when they established their present banking system and gave to the banks practically a free banking system? Mr. ECKELS. They have kept along very successfully. Mr. FOWLER. In twenty-two years? Mr. ECKELS. But there would have been if they had had the same conditions which we have here. You must deal with our people and take our conditions, and take our habits and education in these things, and the law which surrounds them, and the tendency of overdealing and overtrading, and all that sort of thing. Mr. FOWLER. As a matter of fact, it is true that all over the worldgo back and take in Scotland for two hundred years and the banks to-day which exist upon a credit system-there have been less, and very much less, too, of the ups and downs of banking interests than we have had in this country? Mr. ECKELS. I will answer that question as I answered it the other day. I then stated that when a large number of banks failed in England which operated under the same system as Scotland, it was found that no banks failed in Scotland. A distinguished economist, on being asked what was the explanation for such fact, replied that the explanation was simply that the Scotch were better bankers than the English. Both were issuing credit currency, but the Scotch banker was a banker always banking upon banking principle; while the English banker, at the time when these failures occurred, did the thing which could not help resulting in the destruction of the system. It was not the system, but the way in which the system was carried out. Mr. FOWLER. Is it not true that since 1839, when that panic occurred which led to the English bank act of 1844, the English bankers have gone on with a very much greater degree of safety than the banking system in this country? Mr. ECKELS. Yes. |