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BILL H. R. 171.
The CHAIRMAN. That is what I wanted to bring out. That is to say, it would not relieve the Treasury situation, but would improve the banking situation. Now, if you will turn to page 17 of the argument you will please take up item 1. You have examined the five bills referred to this committee and drawn by Mr. Walker, Mr. Brosius, Mr. Hill, Mr. Cox, and Mr. Fowler, respectively?
Mr. ECKELS. Yes; I have given them such examination as I could. The CHAIRMAN. My first statement is as follows: The Walker bill makes not the slightest change in the existing conditions as to gold coinage or silver coinage or the use of gold or silver, legal-tender notes, Treasury notes, or any other form of paper money, any further than is necessary to relieve the Treasury of the United States from being in any way responsible for the current redemption of any form of paper money. It provides a surer and safer method for the current redemption and also the final redemption of such notes than under existing laws.
Is not that true?
Mr. ECKELS. In answer to that I would state that the redemption by the banks, with the responsibility placed upon the banks, would be a great deal better, everything considered. It would relieve the Treas. ury Department to a greater extent of the present burden which these redemptions place upon it.
Mr. SPALDING. Would it be a surer and safer method? That is the question.
Mr. ECKELS. Yes, I believe that at a critical time it would be a surer method because of the fact that the banks have the machinery which the Government has not.
The CHAIRMAN. That is the true test; is it not? The actual doing and proved result is the test of anything.
Mr. ECKELS. Yes; and for the reason that you would not have everyone continually measuring his operations by the fact that the General Treasury had lost a million dollars of gold or had gained a million dollars of gold.
The CHAIRMAN. Is it not a fact that if the banks lost a million dollars of gold it would be simply the gold going out from an individual bank into another bank where, if the Treasury loses, it is a final loss to the Treasury system of redemption ?
Mr. ECKELS. Everyone would not know when the banks had lost a million dollars, whereas as it is now, whenever the Treasury loses a million dollars in gold everybody knows it.
SUSPENSION IN THE PANIC OF 1893.
Mr. SPALDING. I would like to ask the Comptroller, if it is not a fact that the banks all suspended during 1893, and refused to pay currency over their counters?
Mr. ECKELS. No.
Mr. ECKELS. They gave the equivalent, which was rapidly redeemed when needed, something the Government could not have done without issuing bonds.
Mr. SPALDING. And supposed to be in violation of law by so doing.
NOT A VIOLATION OF LAW.
Mr. ECKELS. I do not think it is a violation of law. But that was an illustration of the very thing I am trying to bring out. The banks have the machinery which, without enactment of law, enables them, even at as critical time as in 1893, to protect themselves and to prevent not only bankruptcy to themselves but general bankruptcy. The Gov. ernment could not protect itself except by issuing bonds, which is not a very popular thing, and can not be done rapidly, except by a syndicate contract.
Mr. SPALDING. When the bank refuses to pay currency on a check of its current depositor, and the money is there to the credit of the depositor, is not that an act of insolvency under the national banking law?
Mr. ECKELS. I suppose it might be construed as an act of insolvency.
Mr. SPALDING. Isn't it a fact that the national banks in 1893 and 1894 did so refuse?
CLEARING-HOUSE PAYMENTS OF 1893.
Mr. ECKELS. No; a majority of them did not. So far as New York City was concerned they made everything payable through the clearing house.
Mr. SPALDING. Through the clearing house only, and there was no currency paid by the banks!
Mr. ECKELS (continuing). And it was a very wise measure.
Mr. SPALDING. I am not discussing the wisdom of the measure. I am discussing the actual fact that did occur.
Isn't it a fact that the Government, in its redemption, was more sure and more certain, and that the only redemption we had, and the only money we could get was largely from the Government; in payment of anything we could get currency from the Government, and that is the only way you could get currency. I was running a bank at that time and know something about it.
Mr. ECKELS. But the popular suspicion that the Government was not going to be able to do that
Mr. SPALDING. I am not talking about the popular suspicion.
Mr. ECKELS (continuing). Created the condition of affairs witnessed. If the Government had been out of the banking business there would not have been seen the financial difficulty of 1893.
Mr. SPALDING. Isn't it true that in 1895 and 1896 the banks of Philadelphia suspended payments largely, and refused to pay currency and did not have the currency?
Mr. ECKELS. Some banks may have suspended such payments, but not largely so. Certainly no complaint ever reached me to such effect. Again, there was a condition where bonds had to be issued and the Treasury was in danger of default in its redemptions in gold of its demand obligations.
Mr. SPALDING. I was actively in the banking business at that time and I do not know of but one or two banks in the United States at that time that did not refuse positively to pay currency over their counters.
Mr. ECKELS. There was not a bank in Chicago that did not pay currency when demanded. You are mistaken about that Mr. Spalding.
COMPTROLLER'S OPINION OF H. R. 171. The CHAIRMAN. Now, Mr. Eckels, will you please take up the 20 statements made commending my bill. I want your opinion as an expert. You having examined all the bills, I wish you to go through those statements as to the effect of the bill when enacted into law and say whether, in your judgment, they are fair statements or not. If you will read them in order it will save interruptions, and we will ask questions after you get through.
Mr. ECKELS. That is placing a pretty difficult task upon me. I think you should take the statements and ask me to give my views on such points as you desire.
The CHAIRMAN. I would prefer to do that. On motion passed by the committee it was decided that the chairman should ask the Comptroller's views on such sections of the bill H. R. 171 as he (the chairman) desired, without interruptions from the other members of the committee, and that after the different sections of this bill had been gone through with and the chairman had finished his questions, that the other members of the committee would be given an opportunity to interrogate the Comptroller or speak upon the bill in question.
Please give your opinion of the 20 propositions I lay down, beginning on page 17 of my argument, commencing at the first one.
Mr. ECKELS. We have taken up the first of your statements.
ORIGINAL PURPOSE OF THE NATIONAL-BANK ACT.
The second statement is as follows:
It makes no change in the existing banking system other than to enlarge and perfect it in accordance with its original purpose.
That is a pretty broad assertion, but it is evidently the design of the bill to enlarge the circulation feature of the bank act. The original purpose of the bank act was to provide circulating notes, which feature of banking, instead of being the principal thing with the national banks, is now only the incident. It has been given up because of a want of profit on circulating notes. The profit of banking to-day is found with the national banks to be almost entirely in its deposit feature. The basis of this bill seems to be to develop that original feature in the act, and if your estimates of profits through the provision of your bill are correct, that feature of national banking would again be developed, provided that the bill as a whole is acceptable to the banking interests.
As I stated yesterday, and I think you agree with me, Mr. Walker, the banking interests of the country must have it shown to them that this bill will accomplish these things before they will accept it.
RIDDING THE TREASURY OF CURRENT REDEMPTION.
The third statement you make is as follows: While dispensing with the formal bonds for taking out currency, it supplies their place with a currency that is the equivalent of small noninterest-bearing bonds instantly payable upon presentation.
That, I take it, is the substituting for bond securities legal tenders in currency. You provide in your bill for getting the Government rid of the current redemption of legal tenders, and in that way for funding, practically, of the present Treasury issues. I believe that is a feature of Mr. Cox's bill, and also, to some extent, of Mr. Fowler's bill. Am I not right about it?
Mr. FOWLER. So far as the surplus amount of money in the Treasury is concerned.
Mr. Cox. I do not understand from your statement, and I do not think the committee understands, how it is that Mr. Walker's bill provides for getting rid of the greenbacks. On page 9 of the bill, section 8 provides that the Secretary of the Treasury is hereby authorized to issue United States legal-tender notes described in section 3 of the act of March 3, 1863, in the manner described in section 6, to the amount necessary to carry into effect the provisions of this act. Now, I don't understand that, and I don't think your attention, Mr. Comptroller, was called particularly to this.
Mr. ECKELS. My understanding is that Mr. Walker's bill provides that when a bank is chartered, it shall to a percentage specified, for taking out lawful money of the Government, deposit gold, silver, greenbacks, and other things. The bill you have introduced provides that the bank shall deposit legal tenders also. The section to which you refer would be resorted to only wben the present issue of demand obligations had been exhausted by the banks in their deposit as required. In case other banks were organized and there were no legal tenders not absorbed the Secretary would recur to the issues of other legal tenders.
Mr. Cox. Under the bill I introduced they take charge of certain of those demand notes. I understood this bill tended in the same direction. I was trying to get at what was the difference between them.
Mr. ECKELS. That is the point I tried to make when I said the provisions of this bill, H, R. 171, were not different from yours to a certain extent, that extent being the deposit of present outstanding legal tenders by the banks to secure circulation.
ISSUING NOTES AGAINST ASSETS.
The fourth statement Mr. Walker makes is as follows: It makes sure to banks the legitimate profit on the currency they take out in 10 per cent localities and in 4 per cent localities, and in all other localities proportionately profitable to the banks in each locality.
That, I suppose, is caused by the fact that you would permit them to issue notes against their assets to the amount of the reserves held by them.
The CHAIRMAN. Against their assets?
The CHAIRMAN. Yes; ultimately limited by the reserve held. That is to say, 10 per cent localities would be entitled to make 10 per cent on the currency they had out, and now they can not make anything under the bond system,
CURRENT REDEMPTION PUT UPON THE BANKS. Mr. ECKELS. Your fifth statement is as follows: Under the present law there is no conceivable way of preventing any individual, Hebrew or Christian, from taking out of the Treasury, without the slightest hindrance, just as much of gold as he can secure of greenbacks, to hoard or ship out of the country, and in disobedience of economic law. Under the proposed bill there is no conceivable way gold can be shipped out of the country in disobedience of economic law.
I do not think there is any doubt about that statement. Under the provision of the bill, which takes the demand obligations of the Gov. ernment out of the way of current redemption by the Government and places the responsibility therefor upon the banks, if successfully carried out, there would be a complete guarantee against the Treasury being subjected to the continual maintenance of a gold reserve against these notes. It would not be constantly in danger of a run, because, under the provision of the bill, you design to have the banks assume these obligations, and in this manner place them beyond the reach of being presented to the Treasury for redemption.
COST OF CURRENCY AND RATES OF INTEREST.
Your sixth statement is as follows: Under the present law the cost of currency to banks, and consequent rates of interest to the people, is less and less in proportion as interest is low and growing lower.
Under the proposed bill the profit on currency is more and more as interest rates increase, and the profits grow less to banks on the currency as interest decreases. This tends to depreciate interest rates.
I would like to have you restate that provision, so that I can exactly understand the way in which the object you seek to reach can be obtained.
The CHAIRMAN. Under the present law the cost of currency to banks, and the consequent rate of interest to the people, is less and less in proportion as interest is low and growing lower. That is proved by the fact that on the bonds sold February 1, 1895, at only 104.5 and issuing currency in a 4 per cent locality, they could only mako 2 per cent, or make 1.71 per cent in a 6 per cent locality, or 1.35 per cent in an 8 per cent locality, and .98 per cent in a 10 per cent locality on the currency issued.
When the credit of the Government is normally good, and the bonds sell at prices paying the purchaser 24 per cent, or at 130.8749, the profit to banks on this currency would be as follows:
In 4 per cent localities the profit would be 43.99 per cent more than in 6 per cent localities.
Under the Walker bill it would be 50.47 per cent less in 4 per cent localities than in 6 per cent localities.
In 4 per cent localities the profit would be 174.35 per cent more than in 8 per cent localities.
Under the Walker bill it would be 106.95 per cent less in 4 per cent localities than in 8 per cent localities.
In 4 per cent localities the profit would be 6555.55 per cent more than in 10 per cent localities.
Under the Walker bill it would be 160.42 per cent less in 4 per cent localities than in 10 per cent localities.
That is, under the present system currency costs more and more to the banks as they take it out where interest is higher and less and less to the bank where interest is low, and that is proved by the actuary's figures I have given you. Under the proposed bill the profit on the currency is more and more as interest rates increase, and the profits to banks grow less as interest decreases.
PROFITS ON CURRENCY VARY DAY BY DAY.
Mr. ECKELS. Your seventh statement is as follows: Under the present law profits on currency vary every day in the year at the same rates on loans and discounts. Under the proposed bill the profits on currency are the same every day in the year.