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Insolvent national banks for which receivers were appointed during the year 1893, with claims proved, dividends paid, total losses, capital stock, averago

cash reserve and average total reserve during year prior to insolvency, circulation issued, redeemed, and amount outstanding October 31, 1895, tho itoms of olaims proved, dividends and losses being only estimated from last data obtainable.


(March 2, 1896. James H. Eokola, Comptrollor.)

Circulation Oct. 31, 1895.

Rocapitulation and averageo.

Total Total
claims dividends
proved, paid,
estimated. estimated.



Averago Average

cash total
Capital reserve reserve
stock at held

date of during during
suspension. year

prior to prior to
insolvency. insolvency.





$1, 244, 740


$125, 313

$206, 981

$149, 733

$74, 954

2, 757, 219

894, 100

330, 247

693, 697

318, 735

181, 555

Banks, 16 in number, having capital stock of $50,000.
Banks, 21 in number, having capital stock of over $50,000 and

not exceeding $100,000.
Banka, 8 in number, having capital stock of over $100,000 and

not exceeding $200,000.. Banks, 11 in number, having capital stock of over $200,000 and

not exceeding $500,000.. Banks, 2 in number, having capital stock of over $500,000......

Total, 58 banks..

1, 990, 782

$684, 740
1, 863, 119
1, 690, 782
3,990, 558
2, 172, 000


237, 877

417, 252

1, 895, 000
1, 425, 000
3, 650,000


$224, 687
500, 290
353, 100
532, 957

88, 600
1, 699, 634

126, 990

6, 494, 558
2, 272,000

2, 504, 000

100, 000

939, 944
511, 301

1, 718, 007

511, 301

226, 110
341, 782
54, 112

191, 175
34, 488

14, 759, 299

10, 401, 199

4,358, 100

2, 144, 682

3, 447, 238

1,090, 472

609, 102

77, 796

42, 796



12, 936


9, 359

4, 684

88, 720


90, 238

15, 726

28, 271

23, 823

15, 178

8, 648

131, 296 248, 848

211, 348

Average for banks having capital stock of $50,000
Average for banks having capital stock of over $50,000 and

not exceedling $100,000.
Average for banks having capital stock of over $100,000 and

not exceeding $200,000.
Average for banks having capital stock of over $200,000 and

not exceeding $500,000.. Average for banks having capital stock of over $500,000......

General average for foregoing banks, 58 in number.

37, 500

178, 125

29, 735

52, 156

44, 137

28, 264

15, 873

590, 414 1, 136, 000

362, 778 1, 086, 000

227, 636 50,000

85, 449 255, 650

156, 182 255, 650

48, 451 44, 300

331, 818 1,000,000

168, 448

31, 071 27,056

17,380 17, 244

254, 471

179, 331

75, 140

36, 977

59, 435

29, 304

18, 801

10, 503


The importance of clearing houses as a part of our national system of banking is so admirably stated by Mr. Theodore Gilman that I adopt a part of his statement, only changing a word here and there.

THURSDAY, February 20, 1896. The subcommittee met at 10.30 a. m. There were present Messrs. Brosius (chairman), Hill, and Cobb of Missouri.

Mr. Theodore Gilman, of New York City, was introduced and made the following statement:


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MR. CHAIRMAN AND GENTLEMEN: The first stated object of the bill is "to protect and support commercial credit, and to equalize rates of interest,” and it provides in its first section for the incorporation of individual banks into clearing-house associations.

The theory of the bill is that the absence of a means of supporting credit is inherent in a system like that at present existing in our country, which provides only for the incorporation of individual banks and stops there.

The organization of individual banks forms the basis of a system, but if the banks are not organized with relations to each other it is a misnomer to call it a system; it is only an agglomeration. Individual banks are organized under the national currency act on an independent basis, and are empowered to take care of themselves and their customers. They are competitive and not mutually supporting; each one is a unit and autonomous, like a petty principality.

We use the term “national banking system” to describe the 4,000 separate banks which are organized under the national currency act of 1863. But do they form a system in the sense in which we use that word to describe systems of which the executive, legislative, and judicial branches of the Government are examplest Lower and higher officials, elective bodies, and courts make up the gradations of these systems.

It is evident that a national bank does not cover the whole operation of banking from the creation of debits and credits to their final extinction. The boginning of the operation is in a bank, but it is concluded in a clearing house. The enormous amount of clearings, aggregating fifty thousand millions annually, show the importance of their functions from a money standpoint. But their services can not be even thus limited, for they provide the daily test of the solvency of every bank and business man in the country; they provide a barometer of the state of credit and the movements of currency, and are the only places where individual banks are brought together and where united action can be secured.

Out of these conditions comes the necessity of mutual agreements and regulations for the government of the business to be transacted, and for the protection of the banks associated in the clearing house. The clearing house must have its articles of association or incorporation under the laws of the different States, its officers and committees, and their duties must be clearly defined. For the protection of the associated banks there must reside somewhere the right and duty to inspect the affairs of any of their number, and even to suspend one from its privileges on specified proofs and charges. These are powers in which not only the associated banks are interested, as the representatives of their many stockholders, but also all the customors of each bank, and the ramification of these interests in every clearing house as at present constituted stretch far and wide over the whole country. The organization and regulations of clearing houses become, therefore, matters in which the entire country is interested, and in times of commercial disturbance this becomes evident beyond question. At such times the most delicate questions are brought before clearing houses for their decision, and the wisdom of experienced bankers has then the opportunity to render important service in staying incipient panic and in carrying houses and banks over difficulties that are never known outside of banking circles.

The banking system, therefore, must be considered to include not only banks but clearing houses as well, and though these latter play such an important part in the banking operations of the country, they are not a part of the national banking system, and are not under governmental supervision. The question arises, Can the national system be considered complete until clearing houses are incorporated in it under United States laws and Government supervision To answer this question intelligently we must then take a glance at our national banking system and inquire what are its chief distinguisbing characteristics, not only at home, but as compared with the systems of other nations.

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It is a remarkable political fact, and one which wo do not always fully appreciate or give sufficient weight to, that the United States stand alone among the nations of the earth in having a national system of banking based upon a general law. This situation has been reached as the ontgrowth of American institutions, and as the result of political and financial discussions and campaigns conducted with intense excitement on the one hand, and acknowledged ability on the other. Now it must be received as the first article of our financial creed, universally accepted as republican dogma, that banking in this country must be done under a general law.

The underlying purpose of a general banking law is to form banks for the benefit of the people, and to make free all the benefits of the law to any who comply with its conditions.

The chief effect of a general law is to create a large number of individual banks of moderate capital in all parts of the country. Banks of great capital, sufficient to give a world-wide credit, or to enable a bank to establish branches in this and other countries, and to issue currency on its own credit, are not contemplated by a general law. Such banks must have special charters and be to some extent monopolies; and they are conducted for the privileged owners and not for the people.

In a banking system composed of 4,000 individual banks of equal standing and moderate capital there must be found some substitute for the great banks of other countries—the Bank of England or the Bank of France. That these banks, from their central position and commanding capital, do give a steadiness to the financial affairs of their countries, and that it would be a benefit for our finances to be steadied in the same way, can not be denied. Our people will, however, neither yield their approval of general laws nor their disapproval of a governmental bank. This great need of a balance wheel in our financial system can be met in entire harmony with republican institutions by another general law which will provide for the incorporation of associated and adjacent banks in clearing-house associations, as provided in the bill before us. By means of the provisions which can be incorporated in a general law, the defect may be obviated of the lack of commanding capital, and all the advantages secured which large resources bring, not only for the transaction of current business, but for special emergencies, when united action would be desired to preserve the stability of the financial situation.

The advantages resulting from the joint action of banks may be seen in the anion of the banks of Great Britain in the crisis of 1890, when by concerted action they formed a guarantee fund of £15,000,000 to save the Barings from suspension. By this magnificent energy a panic was avoided which the Bank of England was utterly unable to meet alone. Among Macleod's retlections on this subject is the following:

“ To meet such tremendous crises, as all future ones will be, the Bank of England must act together with all the other banks in the country to support the commercial community."

The united action of the banks composing the clearing house of New York in 1857, 1860, and 1861, and at various times since then, by the issue of clearing-house certificates, of which the last familiar instance was in 1893, proved of the greatest benefit, not only to New York, but to all the country. This action was without any special legal authority, and it is evident that if our clearing houses are incorporatod under a general law, and made part of our banking system, that we would have the machinery ready for action all over the country to meet any financial crisis, and that not a day's delay need occur before it is announced that adequate provisions have already been made for any emergency. The united action of the associated banks of the United States through their clearing houses would always establish credit, and this resource would always be at hand if the clearing houses were incorporated into our banking system by act of Congress. It is to Congress the country must look for appropriate legislation to include all banking operations under Gov. ernment supervision, so that in fact, as well as in name, we shall have a national banking system.

Republican ideas have thus far controlled the development of our banking system. Under the guidance of the principles contained in the Declaration of Independence the monetary system of the United States has reached a point which is in certain particulars in advance of that of any other nation in the world. In the characteristics of general banking laws and governmental inspection and uniform and complete statistical reports no other country has reached our degree of theoretical advance. We need but to add the capstone of association under a general law with governmental supervision to make our system not only the best in the world, but the most efficient instrument possible for the development of the resources of our land. And this last step is preeminently republican, for it leaves the individual banks free and independent, and yet organizes them into strong bodies by means of incorporated clearing houses. A banking system so formed would last as long as the principles of representative government.

Having thus considered the incorporation of clearing houses under a national law as necessary to complete the national banking system, we will now discuss such incorporation as a measure “to protect and support cominercial credit, and oqualize rates of interest."

A bill which has this for its first stated object, not only proposes to do that which the entire business community must approve of, but it implies that commercial credit is now unprotected and unsupported, and that there is need of some additional agencies, other than those at present in existence, to fully and perfectly accomplish this most devoutly to be desired result. The argument on which this bill is based is so simple that it can be stated in a single sentence, but the subject is so large that volumes could be written in elucidation of it. In a sentence, it is this:

Panics or failures of commercial credit come upon the business community with unwelcome frequency, and an ample safeguard against their destructive effect would be provided by incorporating clearing houses under United States laws, with power to issue currency on pledge of convertible collateral security to banks applying for such accommodation. It is evident also that any system which is able to bear a great strain can with greater ease bear a lesser, and if the system of incorporating clearing houses could avert panics, it could also avert money pressures of less magnitude and meet the requirements of busy seasons as well, and thus attain the great desideratum of equalizing rates of interest throughout the year, and from one end of the country to the other, so that business men should not be compelled to pay high rates of interest for money in any part of the country only because business is brisk, or those in one part of the country be compelled to pay a much higher rate of interest than those living in another.

As the losser is contained in the greater, wo must consider, for a proper understanding of the objects of this bill, the nature of the failures of commercial credit, called panics, and the two methods of their cure.

Panics are occasional failures of confidence which are inseparable from an unprotected credit system. The credit system may be said to have begun in England by the chartering of the Bank of England in 1694. Two years later Bank of England notes were at 20 per cent discount, and the bank stopped payment thereon in coin (Adam Smith, Book II, Chap. II). So it appears that two years after the modern credit system was established there was a failure of confidence, and we have been having a repetition of the same experience every few years from that time to the present day, intensified because of the isolation of banks.

The cause is not far to seek. We give credit to an order or promise to pay of a government, individual, corporation, or bank. A bank will print a circulating note to read: “We promise to pay on demand one dollar," or will receive deposits and promiso to pay them on demand, and if we believe the bank can and will do as it promises we give it credit. But we know all the time that the bank only keeps on hand in cash 25 per cent of its promises to pay. Everybody knows that; but in an intelligent community--and credit is only possible in such-the giving of this credit is accepted and recognized as reasonable and right, and the sufficiency of a reserve of 25 per cent is belioved to be as good for all practical purposes as keeping in hand the entiro amount.

But not nly banks and governments promise to pay money which they have not in hand, but all business is conducted on the principle of a reserve, which are other words for the credit system. The merchant, manufacturer, and business man generally all promise to pay in the future the money proceeds of commodities which are yet unmanufactured and unsold, and enough cash only is kept on hand to meet present requirements. By means of the credit system the amount of business is enormously increased. "Credit,” said Daniel Webster, “has done more a thousand times to enrich nations than all the mines of all the world.”

But let something unusual happen-a war or other disaster-then the insufficiency of the reserve, under the exceptional conditions of any one bank, is brought to men's minds with startling vividness. Credit vanishes. Fulfillment of the obligation is demanded.

A withdrawal of 10 per cent of deposits is sufficient to throw the whole banking system of the country into confusion. In 1884 the failure of the Metropolitan Bank and other circumstances caused such a withdrawal and the consequent panic. In 1893 the silver scare and in 1895 the Venezuela message have done the same thing. These troubles are not due only to the bank failures, the silver question, and the Venezuela message, but to inherent defects in our system, in banks having no safe and sure means of supporting each other. Therefore the true mode of procedure is to cure the system so that it can in the future meet similar emergencies and not be overwhelmed by them.

With only 25 per cent it is of course impossible to pay 100 per cent in a day; and when a panic occurs a struggle to realize on investments takes place, prices fall, payment of debts is demanded, failures are precipitated, ending in liquidation, which is commercial death and decomposition. This is a panic, and is as nothing to banks which usually come out whole as compared with the damage resulting to the people. Every such occurrence causes distress to families and sets whole communities back by destroying productive business and obliterating accumulated capital. The loss to this country by the panic of 1837 was then estimated at six thousand million dollars. This was the greatest monetary panic which the world has ever seen.

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The loss resulting from every money panic is incalculable, but it falls on the business community, and not on the banks.: Consequently, when bank officers are asked to prepare a banking scheme they suggest a plan like that known as the Baltimore plan, which is meant to work for the benefit of banks.

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McLeod says: “In the modern system of dealing with panics, called the expansive method of credit, it is indispensably necessary that there should be some source to create and issue solid credit to sustain solvent houses in a monetary panic.” This is in accordance with the often-quoted sentence of the Bullion Report of 1810 to the British Parliament, the greatest financial document which was ever written. enlarged accommodation is the true remedy for that occasional failure of confidence to which our system of paper credit is unavoidably exposed.”

The bill is intended to allay or prevent panics and equalize interest charges by providing a means whereby banks can meet the demands caused by failures of confidence in the credit system without putting the screws on the business community and thereby precipitating a panic on the country.

It is hardly necessary to attempt to prove that an enlarged accommodation to solvent houses will allay a panic. À panic is caused by the fear that the reserves will be exhausted and that there will not be enough money to meet all demands. If a large amount of fresh money can be had, all fears will be removed. If that amount is practically inexhaustible, and in such currency as can not fail to be good in the wildest panic, then the panic itself is at an end.

Our only resource in this country is to combine our banks into groups, and thus secure a responsibility equal to the aggregate capital of all the associated banks. This can be done by incorporating clearing-house associations in the manner described in the bill under United States law, which shall give to clearing houses the power needed. By this means the banks will be provided with a way by which they may secure circulating notes of a credit so solíd that it never can be doubted in the wildest panic. The pressure would then be taken off the business community and placed upon the banks as part of their legitimate work.




Washington, D. O., January 15, 1896. DEAR SIR: In compliance with your request of the 10th instant, I inclose the accompanying table, the first column of which shows the net gold in the Treasury as of January 1 of each year from 1879 to 1896, inclusive.

The second column shows the average rates of interest paid by the United States on its interest-bearing debt, and is obtained by com. paring the total principal of such debt annually with the corresponding annual interest charge.

The interest charge is found according to the method adopted by the Secretary in his annual report.

The third column shows the annual interest at such average rate.

The fourth column shows the amounts that each of these annual sums will yield compounded at the average annual rates down to January 1, 1896.

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