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OF THE

U.S. Congress, House
COMMITTEE ON BANKING AND CURRENCY

OF THE

HOUSE OF REPRESENTATIVES

RELATING TO

PROPOSED CHANGES IN THE CURRENCY SYSTEM

OF THE UNITED STATES.

PREPARED FOR PUBLICATION BY
FRANK ROE BATCHELDER,

CLERK OF THE COMMITTEE.

FIFTY-FIFTH CONGRESS, THIRD SESSION.

1898-99.

WASHINGTON:
GOVERNMENT PRINTING OFFICE

1899.

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JOSEPH H. WALKER, Mass., Chairman. MARRIOTT BROSIUS, Pennsylvania. GEORGE W. PRINCE, Illinois. "HENRY U. Johnsox, Indiana.

John MURRAY MITCHELL, New York, HENRY C. VAN Voorhis, Ohio.

Adin B. CAPRON, Rhode Island. JAMES T. McCLEARY, Minnesota. NICHOLAS N. Cox, Tennessee. CHARLES N. FOWLER, New Jersey. FRANCIS G. NEWLANDS, Nevada. GEORGE SPALDING, Michigan.

JESSE F. STALLINGS, Alabama. EBENEZER J. Hill, Connecticut.

DANIEL ERMENTROUT, Pennsylvania. GEORGE N. SOUTHWICK, New York. | JOHN W. Maddox, Georgia.

FRANK ROE BATCHELDER, Clerk : 2

a.m. Day

THE INCORPORATION OF CLEARING HOUSES UNDER FEDERAL

LAW FOR THE PROTECTION OF COMMERCIAL CREDIT.

COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C., Wednesday, April 13, 1898. The committee met at 10.30 a. m., Hon. Joseph H. Walker in the chair.

Present: Messrs. Walker, Johnson, Van Voorhis, McCleary, Fowler, Spalding, Hill, Southwick, Prince, Mitchell, Capron, Cox, and Ermentrout.

Theodore Gilman, esq., a banker of New York City, appeared before the committee in advocacy and explanation of the bill H. R. 9279.

[Bill H. R. 9279, Fifty-fifth Congress, second session.] In the House of Representatives, March 17, 1898. Mr. Bartholdt (by request) introduced the following bill; which was referred to the Comunittee on Banking and Currency and ordered to be printed.

A BILL to protect and support commercial credit, to equalize rates of interest, to provide for the incor.

poration of clearing houses, to regulate and define tijeir operations, to provide a clearing-bouse cur. rency secured by pledge of commercial assets and the responsibility of the associated banks, and to provide for the circulation and redemption thereof.

Be it enacted by the Senate and House of Representatives of the United States of America . in Congress assembled, That associations, to be known as clearing houses, for the set

tlement of money transactions by effecting clearances between banks, and for doing other business for and between banks not inconsistent with the provisions of this act, may be formed by any number of banks not less than five duly incorporated, either under the national currency act or under the laws of any State or Territory, of which a majority shall be organized under the national currency act, in any city of not less than six thousand inhabitants, who shall enter into articles of association for the regulation of the business of the association and the conduct of its affairs, which said articles shall be approved by the stockholders of each bank uniting to form the association at a meeting called for the purpose and shall be signed by the officers of each bank by authority conferred upon them to do so by vote of the stockholders, and a copy of them forwarded to the Comptroller of the Currency, to be filed and preserved in his office.

SEC. 2. That the banks uniting to form such an association shall, by their proper officers, make an organization certificate, which shall specify

First. The name assumed by such association, which name shall be " The Clearing House of (giving the name of the city where located and where its business of effecting clearances shall be carried on)."

Second. The names, the amounts of the capital stock, and the number of shares into which it is divided, of the banks composing the association.

Third. A declaration that said certificate is inade to enable such banks to avail theinselves of the advantage of this act.

The said certificate shall be acknowledged before a judge of some court of record or a notary public, and such certificate, with the acknowledgment thereof authenticated by the seal of such court, shall be transmitted to the Comptroller of the Currency, who shall record and carefully preserve the same in his office. Copies of such certificate, duly certified by the Comptroller and authenticated by his seal of office, shall be legal and sufficient evidenco in all courts and places within the United States or the jurisdiction of the Government thereof of the existence of such association and of every other matter or thing which could be proved by the production of the original certificate.

SEC. 3. That every association formed pursuant to the provisions of this act shall, from the date of the execution of its organization certificate, bo a body corporate, but shall transact no business except such as may bo incidental to its organization, and necessarily preliminary, until authorized by the Comptroller of tho Currency to commence the business of effecting clearances. Such associations shall have power to adopt a corporate seal, and shall have succession by the name designated in its organization certificate for the period of twenty years from its organization, unless sooner dissolved' according to the provisions of its articles of association or by act of the banks owning two-thirds of the capital stock represented in the association, or unless the francbise shall be forfeited by a violation of this act; by such name it may make contracts, sue and be sued, complain and defend in any court of law or equity as fully as natural persons; it may elect or appoint directors, and by its board of directors appoint a president, vice-president, treasurer, and other officers, define their duties, require bonds of them, and fix the penalty thereof, dismiss said officers, or any of them, at pleasure, appoint others to fill their places, and exercise under this act all such incidental powers as shall be necessary to carry on the business of a clearing house for the settlement of money transactions by the mutual set-off of debits and credits, commonly called making clearances for banks, and by obtaining and issuing to the banks composing the association notes according to the provisions of this act, and by acting as trustee for the note holders in accordance with the provi. sions of this act, by receiving and holding in trust securities pledged by the members of the association as collateral to the notes issued to them, to be called “clearinghouse currency,” and by acting for the members of the association in their united capacity when authorized to do so by a majority vote of said members; and its board of directors shall also have power to define and regulate by by-laws not inconsistent with the provisions of this act the manner in which its directors shall bo elected or appointed, its officers appointed, its property transferred, its general business conducted, and all the privileges granted by this act to associations organized under it shall be exercised and enjoyed; and its usual business shall be transacted at an office or banking house located in the placo specified in its organization certificate.

SEC. 4. That the affairs of every association shall be managed by not less than nine directors, one of whom shall be the president, a majority of whom shall be directors in banks, members of the association which are organized under the national currency act. Every director shall, during his whole term of service, be a citizen of the United States, and at least two-thirds of the directors shall have resided in the State, Territory, or district in which such association is located one year next preceding their election as directors, and be residents of same during their continuance in office. Each director when appointed or elected shall take an oath that he will, so far as the duty devolves on bim, diligently and honestly administer tho affairs of such association and not knowingly violate, or willingly permit to be violatod, any of the provisions of this act, which oath, subscribed by himself and certified by the officer before whom it is taken, shall be immediately transferred to the Comptroller of the Currency, and by him filed and preserved in his office. At the annual meet. ings there shall be appointed or elected a loan committee, whose duties shall be as described in sections nine and ten of this act. Members of this committee shall not be eligible for reelection or reappointment until one year after their ternis of office shall have expired. They shall be divided into three classes at their first election or appointment, one-third shall serve one year, one-third two years, and one-third three years, and at every election or appointment thereafter they shall be elected or appointed for a term of three years.

Sec. 5. That the directors of any association first elected or appointed shall hold their places until their successors shall be elected and qualified. All subsequent elections shall be held annually on such day in the month of January as may be specified in the articles of association, and directors so elected shall hold their places for one year, and until their successors are elected and qualified; but any director having in any manner become disqualified shall thereby vacate his place. Any vacancy in the board shall be filled by appointment by the remaining directors, and any director so appointed shall hold his place until the next election. If from any causo an election of directors shall not be made at the time appointed the association shall not for that cause be dissolved, but an election may be held on any subsequent day, thirty days' notice thereof in all cases having been given in a newspaper published in the city, town, or county in which the association is located. If the articles of association do not fix the day on which the election shall be held, or if the election should not be held on the day fixed, the day for the election shall be designated by the board of directors in their by-laws or otherwise : Provided, That if the directors fail to fix the day, as aforesaid, banks representing two-thirds of the capital stock represented in the association may.

SEC. 6. That in all elections of directors, and in deciding all questions at meetings of members of the association, each bank member shall be entitled to a representation equal to the minimum number of directors allowed by law to said bank, but no bank organized under a State or Territorial law shall be entitled to a greater

representation at such meetings than that of a national bank. Directors of a bank who shall be appointed to represent said bank at meetings of the association may vote by proxy duly authorized in writing, but no officer, clerk, teller, or bookkeeper of such association shall act as proxy, and no bank any of whose liabilities are past due and unpaid sball be allowed representation in tho board of directors or at the meetings of the association.

Sec. 7. That if, upon a careful examination of the facts so reported, and of any other facts which may come to the knowledge of the Comptroller, whether by means of a special commission appointed by him for the purpose of inquiring into the condition of such association or otherwise, it shall appear that such association is law fully entitled to commence the business of a clearing house as described in this act, the Comptroller shall give to such association a certificate, under his hand and official seal, that such association has complied with all the provisions of this act required to be complied with before being entitled to commence the business of a clearing house under it, and that such association is authorized to commence said business accordingly; and it shall be the duty of the association to causo said certificate to be published in the city or county where the association is located for at least sixty days after the issuing thereof.

Sec. 8. That the clearing-houso association organized under this act, in the chief commercial city in each Stato, or in the city most central and convenient for business in each State, or any clearing house so organized effecting bank clearings of over two hundred' million dollars annually, to be designated and approved by the Comptroller of the Currency, shall be made a clearing house of issue. And if there shall be more than one clearing house of issue in a State, then the Comptroller of the Currency shall divide the State into clearing-houso districts, and banks in each State or district shall do business only with the clearing house of issue in their State or district.

SEC. 9. That a clearing house of issue shall be authorized and empowered to receive from its bank membors, or from any bank member of a clearing house within its State or district, with the approval of the directors of said clearing house, commercial assets, promissory notes, bills of exchange, convertible bonds and stocks, and other socurities and ovidences of debt as collateral security for the circulating notes of the said association, to be issued as provided in this act, and on the approval of the value of said commercial assets by its loan committee, the said clearing house of issue may deliver to said bank member seventy-five per centum of said value in its said circulating notes as an advance upon said pledged property, and shall require from said bank member its promissory note of equal amount, which note shall be in form as approved by said clearing house of issue. The bank member taking said circulating notes shall engage to redeem them in the lawful money of the United States at all times upon demand of payment duly made during the usual hours of business at the office of such bank member, and also when called upon to do 80 by the clearing house issuing the notes, and to give any additional collateral needed to restore any depreciation in the value of the assets pledged, on demand; and on failure to comply with such demands before the close of business hours of the day when made said bank meinber shall be adjudged in default, and shall be thereupon closed pending an examination by a committee from the association which issued the notes. “On recommendation by the examining committee the loan committee shall proceed to liquidate the loan by turning the securities into cash, in accordance with the method provided in section ten. The bank member taking said notes may release its securities from pledge by depositing with the said clearing house of issue clearing-house currency, United States legal-tender notes, or coin certificates, with any charges made by said clearing house of issue, whereupon it shall be entitlod to and shall receive all its securities so pledged. The charges shall be regulated by each clearing house of issue. Upon the receipt of sncb deposit the clearing house of issue shall immediately give notice in a newspaper published in the city, town, or county in which the association is located, which notice shall be published at least once a week for six months successively, that the notes of such bank member will bo redeemed at par, and that all the outstanding circulating notes of such bank member must be so presented for redemption within six years from the date of such notice, and all notes which shall not be thus presented for redemption and payment within the time specified in such notice shall cease to be a charge upon the funds in the hands of the clearing house for that purpose. At the expiration of such notice it shall bo lawful for the clearing house of issue to surrender, and such bank member, or its legal representative, shall be entitled to receive, all the money remaining after such redemption, except so much thereof as may be necessary to pay the reasonable expenses chargeable against the said accounts, including the payment for the publication of the above-mentioned notices..

SEC. 10. That each bank member taking such circulating notes shall guarantee the clearing house of issuo from loss resulting from such issue to them, and in case of a default in the payment of a loan when demanded by the clearing house of issue or of default arising in any other manner, then it shall be the duty of said clearing house of issue to lovy upon all tho clearing houses in said State or district, in pro

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