tions used in commerce among the several States by any two or more of such persons, firms, or corporations, or for the purpose of the settlement of money transactions by the mutual set-off of debits and credits, commonly called "making clearances" for banks shall constitute such persons, firms, or corporations represented in such meeting a clearing-house association for the purpose of the taxation herein imposed, and such persons, firms, or corporations represented shall be jointly and severally liable to pay, and shall pay, into the Treasury of the United States a duty in amount equal to one-fiftieth of one per centum on the aggregate amount of all such obligations exchanged, paid, or in any way satisfied, or on the aggregate amount of the money transactions settled by the mutual set off of debits and credits, at each and every meeting of persons acting for such persons, firms, or corporations: Provided, however, That in case any such clearing-house association pays one-half of the tax herein imposed on or before the day it is due and payable, the other half shall be, and is hereby, remitted: And provided further, That the tax herein imposed on clearinghouse associations herein described shall be wholly remitted to all members of clearing houses that are incorporated under this act. I would also add in section 9, page 9, line 8, to make it read as follows, beginning with line 7: 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 so by the clearing house issuing the notes, etc. Mr. NEWLANDS. Does your bill make any provision as to the kind of coin every bank shall keep on hand for the redemption of the circulating notes issued to it by the clearing house? Mr. GILMAN. No, sir. Mr. NEWLANDS. That is left to its own determination and discretion? Mr. GILMAN. Yes, sir; because the present bank law has complete provisions as to reserves, and it is best to leave that law just as it is, and when the clearing-house currency is secured by gold values, and in addition to that, when you add 25 per cent of those values to its security, and also add the guarantee of all the banks in the country, a bank circulation of this description could take care of itself. Mr. NEWLANDS. Would you expect the bank to keep any funds on hand for that purpose? Mr. GILMAN. Not for the purpose of providing for notes in addition to its other coin reserve; no, sir. Mr. NEWLANDS. What do you regard as a safe reserve for a bank to keep against the calls of its depositors? Mr. GILMAN. I think that the percentages of reserves that should be kept by banks depend upon the system under which the bank is operated. Now the reserves under our national system are entirely inadequate, because there is no provision for self-preservation, and a diminution of those reserves about 6 per cent all over the country for hoarding purposes would cause a panic. But take the Credit Lyonnaise as an example. The Credit Lyonnaise is under the French system, and its advertisements may be seen in the New York papers and elsewhere giving a statement of its condition. It is an immense bank and it has only about 10 per cent of its obligations on hand in cash. That is according to a calculation I once made. It has 10 per cent more in call loans, and then it has bills receivable which it advertises are "immediately discountable at the Bank of France" to the extent of 50 per cent of its obligations, and adding these reserves together you have 70 per cent of the obligations of the bank, which are under their immediate call, and that makes a strong and impregnable position. It is strong with only 10 per cent in gold on hand; but 10 per cent is sufficient under such a system. Mr. FOWLER. Under the Credit Lyonnaise system? Mr. GILMAN. Under the system prevailing in France where the Credit Lyonnaise has its head office. The CHAIRMAN. That is to say, it is one of the branch banks- Mr. NEWLANDS. He says, in effect, the Bank of France has branches? Mr. GILMAN. I should say that is about 60 per cent of its obligations. It is 85 per cent, I think, of their note circulation, and 60 per cent or 65 per cent of the entire obligations, including their deposits. Mr. NEWLANDS. You say the amount of reserve depends upon the system; that under the national banking system of this country the reserves are inadequate. What reserves do you understand are kept as a rule by national banks in this country? Mr. GILMAN. The reserves kept by the national banks vary in different parts of the country. There is a legal requirement of reserve to be held in lawful money. The country banks are required to hold 6 per cent of their deposits in lawful money in their vaults. Banks in reserve cities of the second class are required to reserve 123 per cent, and banks in central reserve cities 25 per cent. The Western banks, the outlying banks, beyond the reach of our money centers, hold the largest amount of cash reserve. In Colorado, Nevada, California, and Oregon the percentage of reserve held to deposits, according to the Comptroller's report of October 6, 1896, was 29.2 per cent; the amount held above requirements was therefore 23.2 per cent. In the Eastern States of Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, and Connecticut the country banks held 10.7 per cent at that time, having a surplus of only 4.7 per cent above the legal requirements, and yet they held $162,000,000 of deposits against $43,000,000 of deposits of the four first-named States, and the other States of the Union are classified between those two extremes. The average of the surplus reserves of the total banks in the United States above the legal requirements were 6.6 per cent at the time named. Mr. NEWLANDS. When you say that the reserves of the national banks are inadequate, do you mean the legal reserve or the actual reserves that they have? Mr. GILMAN. I refer in this to the lawful money reserve. Mr. SPALDING. Kept in the safe? Mr. GILMAN. Kept in the safe. Mr. NEWLANDS. Do you refer to the amount required by law, or the amount that they actually keep on hand, if the amount actually kept on hand is in excess of the legal requirement, as inadequate? Mr. GILMAN. Both are inadequate. Mr. NEWLANDS. I understand you to say a withdrawal of 6 per cent of the reserves of banks for hoarding The CHAIRMAN. Deposits, you mean? Mr. GILMAN. Six per cent of deposits. Mr. NEWLANDS (continuing). Would cause a panic? Mr. GILMAN. I would rather put it in this way: It would put the banks in a position where they would not be able to discount or afford relief to the business community, and they would be obliged to stop discounting and to call in loans to repair their reserves. Mr. NEWLANDS. About what are the total deposits in the banks of this country according to your understanding? The CHAIRMAN. Those are all matters of statistics. Mr. NEWLANDS. I know. Mr. GILMAN. I should say, according to the report of the Comptroller of the Currency The CHAIRMAN. What date? Mr. GILMAN. October 6, 1896. There are 8,208 commercial banks, including national, State, and private banks, which had deposits of $2,553,000,000. Mr. NEWLANDS. Those are national banks? Mr. GILMAN. National, State, and private banks. There are loan and trust companies and savings banks in addition to that, making 9,456 as a total number of banks reporting, having at that time $5,075,000,000 of deposits. Mr. NEWLANDS. Now, leaving out of view savings banks and stating it in round numbers, it would be about $4,000,000,000? Mr. GILMAN. The commercial banks, which are the ones we ought to specially regard, have $2,553,000,000 of deposits. Mr. NEWLANDS. Then 6 per cent of that would be $150,000,000, would it not? Mr. GILMAN. One hundred and fifty million dollars. Mr. NEWLANDS. A withdrawal of $150,000,000 of deposits from the banks would create this condition approaching a panic! Mr. GILMAN. Under the strain of distress, not under the ordinary operations of business. There is a distinction. Mr. NEWLANDS. If they are withdrawn for the purpose of hoarding, do you not think a panic would be produced by the withdrawal-you make the distinction, I believe, between the withdrawal of deposits and redemption of the cash reserve of banks, do you not? Mr. GILMAN. Yes. A closing of accounts may reduce deposits by what is equivalent to journal entries, without payment of cash. Mr. NEWLANDS. How much would a reduction of $150,000,000 in deposits indicate a reduction in the cash reserve of banks? Mr. GILMAN. About 6 per cent of deposits, but 33 per cent of the total reserves. Mr. NEWLANDS. If the deposits were reduced $150,000,000 in all the banks of the country, what amount of coin reserves would that mean was withdrawn from the banks or lawful money reserves? Mr. GILMAN. That would be determined by the nature of the withdrawal. If there were simple cross entries by which certain accounts were closed out on one side and certain other accounts were closed out on the other, it might not require any transfer of money particularly; but if that reduction was caused by the demand of interior banks to strengthen their reserves or a demand arising from merchants who desired to put away money in their safe-deposit vaults for the purpose of providing against any contingencies, it would be an entirely different matter, and 6 per cent of deposits withdrawn in this way would be suf ficient to throw the whole system out of gear, for it would be equal to the withdrawal of one-third of the reserves. Mr. SPALDING. New York went through something like that about two months ago. Mr. NEWLANDS. Do you not think there ought to be some provision requiring a larger reserve to be kept by banks? Mr. GILMAN. I think that is the great want of the country at the present time and that a reserve can be provided either by the power to issue a credit currency as in the case of the German banks, which does not cost anything, it is nothing but the legal power, or it can be provided by the actual putting up the money. A reserve provided in either way affords ample protection to the credit system. The CHAIRMAN. Can you furnish me, and if So, will you the items of the assets and liabilities of the Bank of France anywhere within three or four months after the occupation of Paris by the Germans? Mr. GILMAN. I will endeavor to do that. do so, [Subsequently Mr. Gilman furnished the following statement concerning the Bank of France.] As requested, I now give you a statement of the assets and liabilities of the Bank of France under three dates, June 30, 1870, Septem-ber 8, 1870, which was the last rendered under the Empire, and June 29, 1871, which was the first rendered under the Republic. Also to assist in understanding same, I give the valuable comments thereon of the (London) Economist in their issue of July 8, 1871. THE REMARKABLE ACCOUNTS OF THE BANK OF FRANCE. The accounts which the Bank of France has this week again for the first time since September begun to publish, are perhaps the most remarkable bank accounts which have appeared. They represent the effects of a greater destruction in the political elements of credit (taking the war and the civil commotion together) than have ever been known since banking became a trade, and that effect has been shown by the accounts of a bank much larger and stronger than any which has ever before been subjected to an equal or an analogous experience. The most important fact is that after all the calamities which have happened, even now the Bank of France can not be said to stand at all badly, if we take due account of its peculiar position and circumstances. Of course the liabilities of a bank which has been required by its Government to suspend specie payments, and which pays its outgoings in its own inconvertible paper, are for the present only nominal; they would only become real if specie payments were resumed. But if specie payments were resumed and if the liabilities of the Bank of France in consequence became real, these are what they would be: and the reserve would be nearly £22,000,000, or very nearly one-fifth. And this is really a very large reserve for a country like France where banking is very little developed. It is certainly a much larger proportionate reserve than exists in this country (England). The peculiar provision of Peel's act, which separates the banking from the currency reserve, makes a comparison with any other country always difficult, since no other country has any corresponding circulation. But if we take the banking liabilities of six joint-stock banks only, and remember that the reserves of notes and coin in the Bank of England is the only store of actual cash which England possesses to meet the banking liabilities of these banks and others, we find: Banking liabilities of the Bank of England and six London joint-stock banks December 31, 1870. And the reserve of notes in the banking department is £12,574,000, or 12 per cent of the banking liabilities. Or if we include the banknote circulation and make the Bank of England accounts up into the "old form," as it has now for so many years been called, the account is— and coin and bullion in both departments is £22,383,000, or 17 per cent of the entire liabilities, whether of banking or of circulation. In both cases, when we include only six joint stock banks, we find that the ratio of the English reserve to the English liabilities is less than that of the French reserve to the French liability; and the liabili ties of these six banks are only an infinitesimal small part of the liabilities of England. If we could give all the liabilities of the private banks-all the liabilities of the English country bankers, whether on deposits or circulation-and all those of Irish and Scotch bankers, we should have a most formidable total. Broadly speaking, the reserve in the Bank of England is the only reserve (except the cash in the till and the comparatively small sums kept in Scotland and Ireland in conformity with the act of 1845) which is held against it; but the French liabilities outside of the Bank of France are, in comparison, very trifling, so that we are left with the great and strange result that after the invasion and after the civil war the credit system of France rests on a larger basis of cash and is supported by a far larger percentage of reserve to liabilities than our English credit system, though the latter is in its ordinary state and has not been tested by either invasion or internal convulsion. The principal reason of the remarkable present strength of the Bank of France is its unparalleled strength last year. At that time its liabilities were— Notes and drafts Private deposits £59, 588, 000 7,031,000 17,864, 000 84, 483, 000 |