Mr. ECKELS. The theory of all laws on the subject is that the note holder is the one to be protected as against the depositor.

Mr. BROSIUS. I know, but he should be protected without sacrificing the depositor, if that is possible.

Mr. ECKELS. And should be given the greater number of rights. Mr. BROSIUS. Our system is to protect the note holder without sacrificing the depositor

Mr. ECKELS. You diminish the depositors' assets by just so much by tying up an amount in bonds for the benefit of the note holder. The Government, it is evident under the present law, acts on the theory that the first man to be looked after is the note holder.

Mr. BROSIUS. You do not mean to say that the assets are diminished by tying up the bonds. They are still the property of the bank.

Mr. ECKELS. They are property of the bank specifically set aside at the expense of the depositor for the benefit of the note holder. Mr. BROSIUS. Ought he not to have the benefit?

Mr. ECKELS. That is the point I make, but you say the depositor ought to be looked after.

Mr. BROSIUS. I say the note holder should be first looked after, but in such a way as not to destroy the security of the depositor unless it is necessary.

NOTES ISSUED AGAINST ASSETS.

Mr. JOHNSON. I want to ask one question with a view of getting a final statement from the Comptroller as to his position on one point. Is it not your opinion that in whatever form of banking and currency law may be devised, a portion of the circulating notes issued by the banks should be issued on their assets alone?

Mr. ECKELS. Yes; it is within the limits of those notes that is to be found what is termed the elasticity of bank issues.

Mr. JOHNSON. Do not the statistics show that if the 1 per cent tax on circulation on national-bank notes had been applied to the payment of the notes of the banks that have failed from the time of the organization of the national-bank act to the present time there would have been left a very large balance?

Mr. ECKELS. Yes; there would have been.

Mr. JOHNSON. Can you tell the total amount of notes of the failed banks, the total amount of the tax on circulation, and the balance?

Mr. ECKELS. The total amount of outstanding notes in circulation of all failed national banks to the date of the last report, October 31, 1896, was $19,641,909. The tax collected on bank-note circulation by the Government was $80,007,905. The statistics will be found on page 109 of my last annual report to Congress.

Mr. JOHNSON. Might not the credit of the Government be below par and at the same time the credit of the bank in that country be good? Mr. ECKELS. Yes.

Mr. HILL. Can the same liberal provision of issuing credit currency be safely given under a general law that could be given under a system of special charters, where there was an examination into the bank in each case-into its location and as to the men having it under control? Mr. ECKELS. You would have to have a general law on the subject to make it of general benefit.

Mr. HILL. I admit that, but can the same general provisions be given under a general law as could be given under a system of special charters?

Mr. ECKELS. No; of course not.

Mr. HILL. I mean, would it be safe to give them where any three men could organize a bank?

Mr. ECKELS. I have no doubt you could have more safety provided under special laws making requisite special guarantys, but I do not see how such a thing would be practical. The law would have to be general in its terms and provisions.

Mr. HILL. Which would you prefer, one redemption point for all banks, or numerous redemption districts, made compulsory, or such points as each bank may choose under such regulations as each bank may make for itself?

Mr. ECKELS. I would leave it largely to each bank to select its redemption center, but I would have the regulations made by the Government's supervising officer instead of by the bank.

Mr. HILL. You mean as to the reserve

Mr. ECKELS. I mean as to the manner of redemption.

Mr. HILL. When I speak of the choice of the banks I mean in selecting their own redemption points.

Mr. ECKELS. I would leave it largely to the banks.

TWO FORMS OF REDEMPTION.

Mr. HILL. Do you think well of any system that redeems one note of the bank by another note of the same bank of a different form? Mr. ECKELS. You mean

Mr. HILL. Having two classes of notes and redeeming one note in another kind of a note?

Mr. ECKELS. I would have the notes redeemed in gold and gold only.

Mr. HILL. Yes; but on general principles, would you think well of any system that redeemed one form of its notes in another form of the same bank note?

Mr. ECKELS. No; I would not. No redemption is made if the redeeming money has itself to be redeemed.

Mr. HILL. Do you see any necessity of keeping a 15 per cent reserve against circulation if one-half of that reserve is not redemption money? Mr. ECKELS. I would prefer to keep a smaller reserve and have it redemption money. You estimate your reserves against deposits, Mr. Fowler?

Mr. FOWLER. The same applies to the notes issued.

Mr. ECKELS. I think you estimate your reserves too high.
Mr. FOWLER. What do you mean- -reserves against redemption?

Mr. HILL. But he cuts it down by having half the money not redemption money.

Mr. FOWLER. That would not make any difference.

The CHAIRMAN. Mr. Hill has the floor.

Mr. HILL. That is a question on his bill. I think Mr. Fowler ought to be given an opportunity to answer.

Mr. ECKELS. A much less amount of redemption money is necessary to care for the notes than for the deposits.

Mr. FOWLER. One half as much?

Mr. ECKELS. Certainly as low as that.

Mr. FOWLER. Then, Mr. Hill, you are answered.

Mr. HILL. I am answered; but in your judgment there would be no necessity of keeping a 15 per cent reserve unless it was redemption money?

Mr. ECKELS. I would have all the reserve against notes in money which absolutely redeems.

Mr. HILL. And I understand from the gist of your remarks that you

would object to the redemption features of the Fowler bill and the Walker bill, on the same ground that you object to mine-that there are two forms of redemption?

Mr. ECKELS. I would reduce all redemption money to one form-that of gold.

Mr. HILL. As I understand you, you would have one form of note only. I want to see if I have your opinion right. As I understand you, you would have one form of note only, partly secured by guaranty or Government bonds or in some other way, and partly issued against assets, but not distinguished in its form, and all redeemable in gold only? That, as I understand, is the gist of your recommendation.

Mr. ECKELS. Yes, I would have a portion of the notes issued against security or with guaranty, and a portion against assets, but I would have them all redeemable in gold. So far as there being a different appearance in the notes issued against the assets and the notes issued against securities, that would not cut any figure as long as they were redeemable in the same thing, but if they were not redeemable in the same thing I would not permit the two classes to be issued.

Mr. HILL. How is the note holder able to ascertain whether the note he holds when a bank suspends is secured by the guaranty or by the assets of the bank other than the guaranty, and if he can not tell wherein is the extra confidence which is given by having any of them secured by a guaranty?

Mr. ECKELS. Under Mr. Walker's bill all the notes are guaranteed by the Government and under Mr. Fowler's bill they are guaranteed by the safety fund. Under your bill, Mr. Fowler, does the Government immediately pay all the notes outstanding of failed banks?

Mr. FOWLER. They draw 5 per cent until the holders are notified to present them.

Mr. ECKELS. Under Mr. Fowler's bill there would probably have to be some distinguishing feature in the bills themselves.

Mr. HILL. You would not approve, then, of a different form of note indicating on its face which is secured by a Government guaranty and which is secured by the assets of the bank only?

Mr. ECKELS. I should greatly prefer to have the bills similar. I think it would facilitate the circulation of them.

Mr. HILL. One more question. Would you approve of one large banking institution in the United States that would take up all the United States Government debt and manage the subtreasury business, instead of its being carried on by the Government?

Mr. ECKELS. I think the Government might very properly finance its affairs through banks.

Mr. HILL. I do not mean to say through the banks as now organized, but substantially the old United States Bank.

Mr. ECKELS. I am not prepared to answer a question like that, but I think the Government could a great deal better finance its affairs in different portions of the country through certain established institutions than it does through the present subtreasury system.

The CHAIRMAN. There are some gentlemen who have not asked any questions, and if they desire to ask them they are now entitled to the floor; and after that Mr. Fowler can take the floor.

CREDIT OF THE GOVERNMENT.

Mr. SPALDING. I have a few questions I would like to ask. In one of the questions asked by the chairman of the committee, Mr. Comptroller, there seemed to be a reflection on the credit of the United States currency. I do not know whether it was intended or not.

The CHAIRMAN. I am no respector of persons. I seek only truth. Mr. SPALDING. Is it true that there is any lack of credit in the Government currency, inasmuch as the bonds of the Government, drawing 4 per cent interest, stand at a premium to-day of 22 and 239 Would not that indicate that the Government security is as good as any Government on earth, and better than any bank in the world?

Mr. ECKELS. I do not think that the chairman has any reference to the currency issues which were secured by bonds.

Mr. SPALDING. I am talking about the credit of the Government, which is bonds, selling at 22 premium to-day.

Mr. ECKELS. Yes.

Mr. SPALDING. Would not that establish credit beyond peradventure of a doubt, equal to almost any government on earth?

Mr. ECKELS. Yes; that was a demonstration. But it has required these frequent public demonstrations to show that its bonds would sell at a good price, and always up until the very day when they were sold nobody knew what they were going to sell for. These demonstrations, with their attendant discussions and doubts, have been exhausting. Under a proper system they would not have been necessary. Mr. SPALDING. Is not that the case with anything?

Mr. ECKELS. No; it is not.

Mr. SPALDING. I think it is. For instance, the Baltimore and Ohio Railroad stock or bonds-they would not know what that stock or bonds would sell for before it was sold.

Mr. ECKELS. But you know, Mr. Spalding, that it was, from the passage of the Sherman Act, a question of discussion by those abroad dealing with us and by people at home and by the Government officials at the Treasury Department whether the Government under existing circumstances would be able to maintain redemption of its obligations in gold, and that the Secretary of the Treasury, Mr. Foster, himself called such fact to the notice of Congress.

Mr. SPALDING. Politics.

Mr. ECKELS. No; no politics in this; simply the fact; Secretary Foster himself felt that with the present laws and the present powers of the Secretary of the Treasury the Government did not find itself in a position to maintain its credit. He insisted that provision should be made, because of the addition of the Sherman notes, to increase the gold reserve from $100,000,000 to $150,000,000.

Mr. SPALDING. The laws of the Government are substantially the same as they have been, and there has been placed, as I understand it from an official communication from the Secretary of the Treasury, $60,000,000 of gold in the Treasury for greenbacks in the last six months.

Mr. ECKELS. Yes.

Mr. SPALDING. And that there has been placed $195,000,000 within the last four years?

Mr. ECKELS. Yes.

Mr. SPALDING. Of gold that was put in for the credit notes of the Government of the United States?

Mr. ECKELS. And there has been drawn out a good many times $195,000,000 by persons who held those notes, for fear if they did not obtain gold on them they would not be redeemed in gold when they were finally presented. As a matter of fact, the question is not whether the credit of the Government is actually all right, but whether or no it has not been doubted. That is the point.

Mr. SPALDING. The conditions are very similar to what they were a year ago, are they not? There has been no change, has there?

THE ELECTION OF 1896.

Mr. ECKELS. No; there has been no change except that the public, because of the result of the Presidential election, came to the conclusion that we were not going to be brought to a silver basis. The extraordinary influx of gold through the demand for our agricultural produce has also had an effect in evidencing the fact that more gold was in the country and more in the Treasury.

Mr. SPALDING. The cause of that demand was the suffering and depression in India and short crops, which gave us an increased demand for our products. If it had not been for the suffering in India, we would not have had that?

Mr. ECKELS. That is so.

Mr. SPALDING. Then it was caused by a short crop in India, causing gold to come in. Otherwise we would not have been able to sell our wheat for so much as we did. Would it not have lessened the security to the depositor and also to the note holder if the currency of the bank was based on its assets alone-for instance, a bank with a $100,000 capital, with a deposit of $300,000, and an issue in currency of $100,000. The depositor and note holder would be less secure than he would be under the present law?

Mr. ECKELS. Not at all. If the bank was properly conducted, it would be just as secure, because a bond is an asset of a bank.

Mr. SPALDING. No; this is a mathematical proposition; and he must be that much less secure; would he not be?

Mr. ECKELS. What security has the note holder or the depositor now, outside of the liability of the shareholder, beyond the assets of the bank? The assets of the bank consist of its bills receivable, its stocks, its bonds, its cash, real estate, and other items constituting its resources. Mr. SPALDING. I think that you and I understand each other. That a bank with $100,000 capital, having $100,000 4 per cent bonds to its credit, with $90,000 worth of bills issued, is perfectly secured, because the bonds are at a premium to day of 22. Now, the difference between $22,000 and $10,000 in circulation would give them $32,000 over and above the assets of the banks. That would not be less security, would it?

Mr. ECKELS. We are proceeding on the theory that the bank, instead of having the bonds in the Treasury, would have them in the vault as an asset. It would have just as large an amount of assets to meet its obligations. The question would be, whether the assets should be kept in the bank or kept by the Government.

Mr. SPALDING. Supposing they were kept in the bank, they would be secured, of course, if a bank was run on that high plane that you talk about which no bank ever has been run on, even the Baring Brothers or any other bank-and the assets did not shrink in value; but when a bank fails its assets necessarily shrink, the same as when a partnership fails the assets are distributed and never fully paid. The depositor and note holder would be infinitely less secured.

Mr. FOWLER. Infinitely less means nothing whatever.
Mr. SPALDING. A great deal larger.

I am glad to see by the answer of the Comptroller that we have established the credit of the United States.

Mr. JOHNSON. I think the testimony of the Comptroller has been exceedingly clear and interesting and speaks for itself.

Mr. ECKELS. There has been no attempt made to discredit the credit of this Government. I have only undertaken to point out the fact that the Government maintains a financial policy which makes its credit a