the collateral security provides for the ultimate payment of these outstanding notes, the notes being issued at 75 per cent on securities supposed to be worth par, 100 cents. The coin value of those securities being 100 per cent, notes to the extent of 75 per cent of the value are issued on them, and that is like lending 75 per cent of the coin value. The CHAIRMAN. That we have understood that is all clear-but that does not meet the point at all. How is the clearing house to get the coin to redeem the notes?

Mr. GILMAN. A clearing house is a place for the mutual set-off of debits and credits. If the coin is not provided to pay the notes by the banks whose obligations they are upon the day of demand, the loan committee of the clearing house must sell those assets to provide the money to take up those notes, and they have a margin of 25 per cent to protect them, and if that margin is not sufficient, then any loss is to be assessed upon the members of the clearing house.

Mr. FOWLER. If exceeding

Mr. GILMAN. The securities.

Mr. FOWLER. Not only that, but they still have a claim against the bank?

Mr. GILMAN. Yes.

The CHAIRMAN. Is your answer, then, that the coin to redeem these notes and all responsibility for their redemption is to be universal, as it was under the Suffolk system in New England, on the banks, and the clearing house is to be absolved from that?

Mr. GILMAN. The clearing house represents all its bank members. The bank borrowing money of the clearing house is the first guarantor, and if a loss occurs on a loan it is assessed on the other members.

I do not think the Suffolk system is parallel. The Suffolk Bank was the redeeming agent for banks of New England, each providing its own redemption fund. I do not think there was any mutual responsibility under that system. The Suffolk Bank system does not provide a currency which circulates in the community, but one which gravitates in a straight line for the redemption bank. It is a question whether it does not make money scarce in the country and plenty in financial centers. The CHAIRMAN. I mean, absolved from that obligation!

Mr. GILMAN. No, sir. The clearing house is acting simply as trustee for the public to hold these securities, and if the debt is not paid on demand the loan committee then administers those securities and they provide the money by their sale. If there is a loss which the borrowing bank can not pay, it is assessed on the other members of the clearing house.

The CHAIRMAN. When you say a "debt," you mean when the currency is presented and it is not redeemed they have to sell these securities?

Mr. GILMAN. When any of the currency which has been issued to the bank is not paid upon demand by that bank, that makes the loan immediately due, and the clearing house, as trustee, would immediately proceed to market those securities and close out the loan, and would have then a claim against the bank for any deficiency, and if the bank was insolvent the deficiency would be assessed upon

The CHAIRMAN. What do you mean by closing out these securities? Mr. GILMAN. Selling them for coin or legal tender.

The CHAIRMAN. You mean to say the clearing house would sell those securities to day for gold and redeem these currency notes that they have issued and loaned to the bank in the gold that they got from the sale of these securities?

Mr. GILMAN. Yes, sir; in the gold or other legal tender.

Mr. PRINCE. Now, to make it plain to me, suppose I have a $20 bill issued by the First National Bank, say, of Galesburg, Ill., under your proposed bill. I present that $20 bill to the bank and it refuses to pay. I ask for the gold and they refuse to pay it. Do I understand you to say that thereupon the clearing-house association proceeds to dispose of the assets or securities placed in the hands of the trustees in the clearing-house association, and that those securities are converted into coin, and out of that fund or coin I am to be paid the $20?

Mr. GILMAN. No, sir; the banks wait for the liquidation, not the public.

Mr. PRINCE. How long am I to wait? Say I am a poor man, and present my $20 as a result of my month's work; say I bring that to the bank, which refuses to pay me, and I want to pay my rent, and if I do not, I will be put out of my house the next day; how am I to get my money?

Mr. GILMAN. Under this law the banks guarantee the payment of that money. All you have to do to get your $20 is to deposit the $20 to your credit, or get some friend to do it if you have not a bank account, and get the money. Then the whole process of presenting that note is handed over to your bank and they relieve the business community of the whole matter, and that note would be deposited in the clearing house in payment of the obligations of the bank to the clearing house, and whoever had that note and wanted to collect it would send it to the bank and demand payment; so that the whole thing is taken out of your hands, and you do not have to go to the issuing bank to get your money, but you simply put it in your bank and get the money.

Mr. PRINCE. But I have no bank account and I go to the bank which has issued this $20. I have worked for this money, and I go to the First National Bank, if you please, of the city of Galesburg, which has promised itself to pay this $20, and the clearing house has promised that this bank will pay it. It is issued through the clearing house by this First National Bank of Galesburg under your bill. I present the bill to that bank and that bank refuses to pay the bill. It is insolvent; it has collapsed and gone. Shall I wait around the corner somewhere until something is done?

Mr. GILMAN. Say you went to the bank and found a notice on the door, "This bank is closed and in the hands of a receiver." Your note would be guaranteed by the remaining banks of the clearing house and its goodness would be unquestioned and no one would think of refusing to take it at par.

Mr. PRINCE. Is it legal tender?

Mr. GILMAN. It is not legal tender.

Mr. PRINCE. But suppose the inan refuses to take it; suppose a man does not want to take it?

Mr. GILMAN. Then you could put it in another bank. It is supposed that anybody who has a small bill to pay can find a friend who has a bank account himself and get him to deposit that, and the bank assumes the collection of the note and the $20 is put to his credit and he can draw it out and give you the gold immediately on the day he put it in the bank; any holder could get the gold or the legal tenders for the bill of that broken bank immediately, in spite of the failure. The banks would attend to the whole matter.

Mr. PRINCE. Let me get it a little plainer.

Mr. SPALDING. Put the reverse of the proposition-how would you collect your bill?

Mr. PRINCE. I can explain that later on when the times comes. I

have this bill of $20, and I owe Mr. Fowler rent for the house in which I live. He has sued upon that for forcible entry and detainer to get me out. He wants me out, and if I tender him the $20 I owe him, which is the amount of rent and all costs up to date, say it just covers $20, I take $20 of that kind of money issued through the clearing house to this bank and the bank does not pay me. I stop by Mr. Fowler and I say, "Here it is," and he says, "It is not legal tender, and if not legal tender I will not accept it." And I tender it to the court and the court refuses to accept it.

I then look around, and I have no bank account, and I have no friends; I am without a friend on earth, and I have a family, and I am liable to be turned out of my home. What shall I do? Where shall I go to get the money to pay Mr. Fowler, who will not take the bill I have?

Mr. GILMAN. You can go to any bank, even if you were not known to the bank. If there was any bank in the district, say 10 miles off, you could go to that bank and get your money. The profit to the banks on the currency would lead them to take care of its credit.

The CHAIRMAN. What is the provision of law in regard to that?

Mr. GILMAN. This law provides that these notes are good at the clearing house, and consequently any bank that has those notes can pay them to the clearing house in satisfaction of any debt against. them, and that makes them current all over the country.

Mr. FOWLER. Will they take them without discount?

Mr. GILMAN. Without discount.

Mr. FOWLER. Take Mr. Prince's case. Suppose he went to a bank, next door, and said: the First National Bank is closed which issued this note for $20; at what rate of discount, if any, would they take this $20 bill?

They can afford to'

Mr. GILMAN. They are obliged to take it at par. pay par because it is good in the clearing house. Mr. FOWLER. They are not compelled to take it? Mr. GILMAN. Section 13, line 8, of the bill 9279 provides that the circulating notes "shall be received at par at all the clearing houses in the United States organized under this act," and in section 12, line 17, it provides that "payment is guaranteed by the associated banks of the United States through any clearing house." I suppose no other party can be compelled to take a note that is not legal tender.

Mr. FOWLER. Oh, yes, they can; national bank notes are not legal tenders, and banks are compelled to take those.

Mr. GILMAN. National banks are not compelled to give legal tenders or gold for national bank notes issued by other national banks. Mr. Prince would be in the same fix with his $20 national bank note as if it were clearing-house currency. A national bank is only compelled to take it "for any debt or liability to it." So his landlord could refuse to accept a national bank note, and national banks could refuse to give him gold or legal tender for it, and he would have to call in a friend, just as I have suggested. As a matter of fact, national-bank notes and clearing-house currency would both circulate without question. It is provided that these notes shall be received at any clearing house, and that makes them at par.

Mr. FOWLER. How are you going to get them there? Who is going to get them there? Suppose the man was miles away from the clearing house.

Mr. PRINCE. Suppose the clearing house was in Chicago and I am here.

Mr. GILMAN. Competition in business is so active that no difficulty is

ever experienced in cashing absolutely good currency. The great object is to make the notes of undoubted goodness and then to make them receivable by all banks, at all clearing houses over the land, for all debts due to banks. These guarantees would make the notes pass from hand to hand without difficulty. If a bank has an accumulation of these notes on hand they would immediately send them to the issuer— to the bank.

Mr. FOWLER. Suppose they receive this $20 of Mr. Prince and they did not know what their assets were worth over there, and he says he will not give but $15, what protection has Mr. Prince got?

Mr. GILMAN. The failure of the bank makes no difference in the goodness of the note. It is guaranteed by all banks. By this process of compelling the banks to accept these notes in payment of their credits at the clearing house it throws upon the banks the burden of collection. That is the point.

Mr. FOWLER. Do you not know that a bank always takes advantage of every piece of paper put to them? They will say, "I do not know anything about this thing." The cashier will say he will not take this because he does not know about it or he will not give more than $15 for it.

Mr. PRINCE. And I owe you $20.

Mr. FOWLER. Would he not be unfortunate in that position? That is the point, I understand.

Mr. NEWLANDS. That could be entirely met by making it legal tender to the banks.

Mr. GILMAN. That is accomplished by compelling the banks to accept these through the clearing house.

The CHAIRMAN. Where does the bill compel them to accept directly? What is the provision?

Mr. GILMAN. I read from the bill.

The CHAIRMAN. What is the section?

Mr. GILMAN. Section 9; if you will, please turn to section 9.

Mr. NEWLANDS. What bill is this?

Mr. GILMAN. This is H. R. 9279. The seventh line on the ninth page:

The bank member taking said circulating notes shall engage to redeem them at all times when called upon to do so by the clearing house issuing the notes and to give any additional collateral needed to restore any depreciation, etc.

Now, look at section 10.

That each bank member taking such circulating notes

The CHAIRMAN. You want to talk right on this point. In line 7, page 9, it says this:

The bank member

That is, the bank member of the clearing house, I suppose

Taking said circulating notes shall engage to redeem at all times when called upon to do so by the clearing house issuing the notes.

Now, there is nothing giving a person any right to call for the redemption of those notes at the bank except the clearing house which issues them.

Mr. PRINCE. I suggest this, that the bank member shall be required to redcem at all times said circulating notes when called upon so to do. Mr. FOWLER. Then you make each bank redeem the notes of all banks. How are you going to fix it then?

Mr. PRINCE. The bank I ask to pay the note refuses to pay it. Then I go, as Mr. Fowler says, next door and it refuses to take it without a

discount. Have you any provision in this bill that, say, the Second National Bank, which is in the building next door engaged in the banking business, will have to take my note at par? That is the point I want to get at and to clear up. This provision does not seem to me to require it.

Mr. GILMAN. Nor does the national-bank act contain that requirement in that form. The demand is made by the clearing house, because the notes would actually come into the hands of the clearing house. I can see that your suggestion would be an improvement to the bill and make it more clear on that point. This provision in reference to the clearing house covers the whole country, and any person in any city anywhere having a note can deposit it in the bank, and every bank in the clearing house is compelled to accept it in settlement of the claims due that bank. Thus, the collection of the note falls upon the person who receives it.

Mr. FOWLER. That would be the depositor?

Mr. GILMAN. The depositor puts it in his bank, which pays it to the clearing house, and by making the clearing house accept it in payment of balances with all the banks in the clearing house, that puts the notes

at par.

Mr. NEWLANDS. As I understand your bill, every bank member is compelled to make redemption of its notes it takes from the clearing house, and you say that every other bank member would be willing to accept those other notes issued by another bank member because he could tender them to the clearing house in settlement of claims due the clearing house from him?

Mr. GILMAN. Yes, sir.

Mr. NEWLANDS. Now, that is the inducement, but there is nothing in your law which would compel the other bank member to take the notes of another bank and give par value for them. You simply say the inducement is that he can make use of those notes in settling the claims of the clearing house against him?

Mr. GILMAN. Yes, sir. The case would be exactly the same as now exists with national bank notes.

Mr. NEWLANDS. You are aware that under the national-bank act any holder of any national-bank notes issued by any bank can compel a bank other than the one issuing it to take that note in payment of the obligation due from him to the bank?

Mr. GILMAN. That ought to be included in this bill if it is not here. That point ought to be covered, as there is absolute security, and it is no hardship upon the banks to compel them to accept these notes from the public as well as through clearing houses. That provision is in the national-bank act, was in the old State bank laws, and is contained in the present German banking law of March, 1875.

The following sentence should be added at the end of section 13, page 14, line 14:

And every bank member of every clearing house organized under this act shall take and receive at par, for any debt or liability to it, any and all notes or bills issued by any clearing house of issue organized under this act.

I would also add immediately after the above the following paragraph:

The meeting together of any persons who are officers, agents, or employees of persons, firms, or corporations in any one or more places once in thirty days or oftener for the purpose of exchanging, paying, or in any other way satisfying any obliga

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