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ter and the private consultations which I had with Mr. McAdoo, I think, however, that this much is certain, that Federal reserve banks will be permitted to loan money to member banks upon commercial paper secured by properly safeguarded warehouse receipts as collateral. This much Mr. McAdoo stated. Under the Federal reserve act a member bank is permitted to borrow money from the regional reserve bank of which it is a member, by authority of Section 13 of the Federal reserve act, which reads as follows:

"Any Federal reserve bank may receive from any of its member banks, and from the United States, deposits of current funds in lawful money, national bank notes, Federal reserve notes, or checks and drafts upon solvent member banks, payable upon presentation; or, solely for exchange purposes, may receive from other Federal reserve banks deposits of current funds in lawful money, national bank notes, or checks and drafts upon solvent members or other Federal reserve banks, payable upon presentation.

"Upon the endorsement of any of its member banks, with a waiver of demand, notice and protest by such bank, any Federal reserve bank may discount notes, drafts and bills of exchange arising out of actual commercial transactions; that is, notes, drafts, and bills of exchange issued or drawn for agricultural, industrial, or commercial purposes, or the proceeds of which have been used, or are to be used, for such purposes. the Federal Reserve Board to have the right to determine or define the character of the paper thus eligible for discount, within the meaning of this act. Nothing in this act contained shall be construed to prohibit such notes, drafts, and bills of exchange, secured by staple agricultural products, or other goods, wares, or merchandise from being eligible for such discount; but such definition shall not include notes, drafts, or bills covering merely investments or issued or drawn for the purpose of carrying or trading in stocks, bonds, or other investment securities, except bonds and notes of the government of the United States. Notes, drafts and bills admitted to discount under the terms of this paragraph must have a maturity at the time of discount of not more than ninety days; provided, that notes, drafts and bills drawn or issued for agricultural purposes or based on live stock and having a maturity not exceeding six months may be discounted

in an amount to be limited to a percentage of the capital of the Federal reserve bank, to be ascertained and fixed by the Federal Reserve Board.

"Any Federal reserve bank may discount acceptances which are based on the importation or exportation of goods and which have a maturity at time of discount of not more than three months, and endorsed by at least one member bank. The amount of acceptances so discounted shall at no time exceed onehalf the paid-up capital stock and surplus of the bank for which the rediscounts are made.

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"The aggregate of such notes and bills bearing the signature and endorsement of any one person, company, firm, or corporation rediscounted for any bank shall at no time exceed 10 per centum of the unimpaired capital and surplus of said bank; but this restriction shall not apply to the discount of bills of exchange in good faith against actually existing values.

"Any member bank may accept drafts or bills of exchange drawn upon it and growing out of transactions involving the importation or exportation of goods having not more than six months sight to run; but no bank shall accept such bills to an amount equal at any time in the aggregate more than one-half its paid-up capital stock and surplus."

So far as the State banks are concerned the relief which they obtain through the instrumentality of the national government must be obtained under the foregoing section of the Federal Reserve Act and the collateral sections thereto. As suggested, Mr. McAdoo stated that money would be loaned to member banks of the Regional Reserve Banks on paper secured by warehouse receipts properly safeguarded. Mr. McAdoo did not go into details as to what he considered a properly safeguarded warehouse receipt. He did state, however, that such a receipt must guarantee the delivery of the actual cotton and ought to contain a provision guaranteeing weights and grades. I did not discuss with Mr. McAdoo, nor did the meeting discuss with him, as to what would properly be safeguarded receipts, other than in the respect suggested. He stated, however, that the party or parties issuing the warehouse receipt should be parties of known and established responsibility. I discussed with him personally the emergency bill prepared at your suggestion and presented to the Legislature, with the details of which I was familiar before I

rency by the use of the paper secured by these warehouse receipts issued by the State as it could if it tendered nunicipal, county or State bonds.

Mr. McAdoo's opinion as to this was not final, but his exact words as I now recall them were that he "was disposed to give paper secured by these warehouse receipts a bond classification."

left for Washington, and while Mr. McAdoo had not had the opportunity to study the matter carefully and could not do so in the limited time which he was able to give me while in Washington, he did state that the receipts proposed to be issued by the State under that bill would constitute highly accept able collateral for rediscount by the Federal Reserve Bank of our district, or Again, I discussed this proposed Texas for the purpose of securing emergency law with many bankers from every seccurrency by any member of the national tion of the country, and without a sincurrency associations, of which associa-gle dissent they expressed themselves tions the national banks of this State to the effect that they would be highly are permitted to become members. He pleased to have such a law in their own made another statement with reference States. to commercial paper secured by ware house receipts issued under the proposed measure, the effect of which you can appreciate with a little further expla

nation.

public approximately one billion dollars of unsecured commercial paper; that he fully believed that an evidence of debt secured by such warehouse receipts as are proposed by this bill would commend itself to the investing public and that millions of dollars worth of this class of paper would be absorbed by investors throughout the United States.

I discussed the measure particularly with Mr. H. R. Eldridge. Vice-president of the National City Bank of New York, and he was very emphatic in his approval of the measure and used this arguAs suggested, national banks are per-ment, that there was at this time floatmitted to become members of the na-ing and being absorbed by the investing tional currency associations under the Aldrich-Vreeland Act. Members of these associations are permitted to issue their notes against two different classes of paper, to be deposited by them to secure the additional circulation obtained. The first class is commercial paper. As to this class members of a national currency association are permitted to issue notes only to the extent of 30 per cent of their capital and unimpaired surplus. The only class of paper which they may use as collateral to secure note issues of this character consists of municipal, State and county bonds which have not defaulted in interest within the last ten years. By using this class of paper members of national currency as sociations may issue one hundred and twenty-five per cent of their capital and unimpaired surplus. This is not a complete statement of the rights of issue under the Aldrich-Vreeland Act, but sufficient for my present purpose.

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From information gained by me at Washington, after having conversed with spinners, producers, bankers, buyers and men in the cotton trade generally, I find the consensus of opinion to be that it will be necessary to carry over until the next year approximately three and onehalf million bales of cotton; some estimate as high as four million, none estimate below three million. The time that this cotton will have to be carried depends in a large measure upon the duration of the European war. Under existing conditions foreign spinners will of course not be in the market for any cotten until such time as conditions become normal.

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Now the additional statement which Mr. McAdoo made was that he was inclined to give the warehouse receipts As illustrating the extreme position proposed by the measure now before the some spinners with reference Legislature a bond classification for is what should be done by the State and of currency under the Aldrich- National governments concerning the Vreeland Act. This is to say, a bank cotton situation, I will call your attenusing paper secured by warehouse re- tion to one instance. I do not state ceipts issued by the State under the that this illustrates the general view of bill now before the Legislature, would the spinners, but that it is the extreme have the same value as a currency view of one who was of sufficient imbasis as have municipal bonds, instead portance to be invited to attend the of being classed as commercial paper. hearing. A certain spinner stated in the Therefore, a member of a national cur- open hearing that heretofore the Northrency association seeking to obtain cur- ern spinners had been forced to pay rency under the Aldrich-Vreeland Act Southern producers a competitive price could obtain as large an issue of cur- for their cotton; but now they had a

chance to name their own price and he did not think it was right for the National Government to "butt in" and help the cotton grower. The general feeling, however, was that it was the duty of all interested parties in all earnestness and with great sincerity of purpose, from patriotic motives, to do what lay within them to protect the producers of cotton and the credit of the country generally, especially the South.

By suggestion of the representatives of the State banks in the South a bill has been prepared and introduced in the National Congress reducing the minimum amount of capital required of any State bank in order that it might join the Federal reserve bank from twenty-five to fifteen thousand dollars, with the agreement that such bank would, within the period of not later than nine months from its admission, increase its capital stock to twenty-five thousand dollars. The Federal Reserve Board was consulted in this matter and tentatively agreed to give the administration's support, and I have every reason to believe that the bill will speedily be passed.

It is estimated that the cotton production in Texas for this year will be four million bales. A large portion of this amount wil be produced by small farmers, who are unable to even gather the cotton without the aid of the banks, much less carry it. If this cotton is per mitted to go upon the market the cotton market will be entirely demoralized and no man can see the end of its effect. I believe it necessary to furnish the producers of cotton with some which will result in preventing the demoralization of the market, as suggest

ed.

means

The means at our command, if we act and act promptly, has three sources. First: the membership of the State banks in the Federal Reserve Bank. Second: the membership of National banks in the Federal Reserve Bank.

Third: the membership of the National banks in a National Currency Association, under the Aldrich-Vreeland Act.

But a membership in either a Federal Reserve Bank or a National Currency Association is utterly worthless to either a State or National bank, unless the bank is in position to tender a class of security to the Federal Reserve Bank or the National Currency Association which will be acceptable on which to base a currency issue. And unless some means is devised of furnishing the banks a

collateral acceptable for this purpose, it is utterly impossible for them to obtain the necessary funds to enable the farmer to pick the cotton and hold the same and not precipitate a demoralization of the cotton market.

There are few warehouse corporations in this State of known financial strength and established credit, and therefore comparatively few warehouses in this State which could issue warehouse re

ceipts acceptable as collateral to commercial paper upon which a currency issue might be based; and these ware houses are not located at points of production, but at points of concentration, and would benefit rather those who buy and concentrate cotton for purposes of profit. They will be of little, if any, benefit to the actual producer.

Any measure which may be designed must do two things: It must lake the warehouse to the farmer and iocate it at his own town, so that his cotton Day be readily stored, and he must have a receipt which will not be questioned anywhere. Besides, whatever is done must be done at once, and it is now too late for any large number of private corporations to establish themselves in the commercial world so as to command the respect and confidence necessary to make the use of their receipts acceptable.

Besides, in the very nature of things, in warehouses in small places to enable sufficient capital will not be invested warehouse receipts issued by them to be used as a collateral to command confidence and prove acceptable.

As head of the Banking Department I am vitally interested in solving the problem now before the people and in preserving the credit of the banks, as well as of their customers. I say without hesitation that under the emergency measure, if the Legislature will enact it into law, I will be able to establish warehouses at every point in Texas where there is any reasonable demand therefor and where storage facilities may be obtained, within a few days after its enactment. I do not wish to leave the impression that I am an advocate of any particular theory or measure, but what I do wish to impress is that the emergency bill is one which in my judgment will relieve the situation in this State and create a respect which will inspire great confidence and be of great value in solving the problem now confronting us, and which will furnish a great measure of relief and protection to the producer.

clothing the Banking Department with ample authority and sufficient funds to establish State warehouses throughout the State and issue receipts.

2. The pasage of some additional laws bringing our State bank law into exact conformity and harmony with the Federal reserve act. I am now studying our law with a view of suggesting the preparation of measures which will bring this about.

3. That all State banks that are qualified at once join a Federal reserve bank and that those which are not qualified by reason of insufficient capital should, if they can do so, at once increase their capital and join a Federal reserve bank.

As illustrative of the classes of security demanded by the national government as a basis for currency to be is sued by the national currency association, and accentuating the necessity of a receipt issued by the State which would be acceptable at once, I call your attention to two incidents of recent occurrence in the State of Texas. A certain well known, large bank of this State, with resources of more than four million dollars, but which for the purpose of not disclosing the identity of same to the public we will call the national bank, joined a currency association and forwarded one hundred and seventy thousand dollars of the best paper contained in its portfolio to the national currency association, all of which was approved by the said association as a basis for issuing currency. The national currency association in turn reported it to the proper authorities at Washington. These authorities rejected approximately one hundred and twenty thousand dollars of this choice paper as a basis for currency issue, stating that the makers of the paper did not have sufficient commercial rating. I happen to know of my own knowledge that there was one piece of this rejected paper which was made by a party who owns at least three million dollars worth of real estate, a greater part of which is unincumbered. However, not being engaged in commercial business this party had no commercial rating. The other incident was of Commissioner of Insurance and Banking.

In making the suggestion that the adminstration of an emergency measure be placed in the Banking Department, I am by no means seeking more duties to perform; on the contrary, personally, I would rather forego the large responsibility and great labor it will entail, but the protection of the credit and standing of the State banks of this State is already placed on my department, and the department, under my predecessors, has established a standing in the commercial world which is second to none in the United States, and I feel certain that the receipts issued will find a ready approval by the National authorities and investing public generally. Respectfully submitted,

W. W. COLLIER,

SEVENTH DAY.

Senate Chamber,

Austin, Texas,

Tuesday, September 1, 1914.

ment, and was called to order by PresiThe Senate met pursuant to adjourndent Pro Tem. Warren.

Roll call, a quorum was present, the following Senators answering to their

a similar nature. The point I wish to
impress is that we have not at this
time any large amount of satisfactory
commercial paper in Texas on which to
secure currency. Not that our paper is
not good, because in the main it is as
good as that of any other State, but
our State is not a commercial State,
and therefore the makers of its paper,
although abundantly solvent, have no
commercial rating, and we will there-
fore encounter more or less difficulty in
securing the acceptance of our paper for
issues of currency.
This instance illus- names:
trates the difficulty which beset us and
the reason why at this time the State
should issue these cotton receipts and
why receipts issued generally by other
people can not hope to be accepted as
collateral for the issuance of currency, Clark.
either by the National Currency Associ- Collins.
ation or the Federal reserve banks. Conner.
My remedies, therefore, so far as they Cowell.
have been developed in my own mind, Darwin.
may be briefly stated as follows:
1. The passage of the emergency bill

Astin.

Bailey of DeWitt.
Bailey of Harris.
Brelsford.
Carter.

Gibson.

Greer.

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Resolved, That the Senate go into a Committee of the Whole in this Chamber, immediately after the morning call, for the purpose of considering all warehouse bills reported out of committee, in an earnest effort to agree upon a single bill for submission to this body.

Senator Astin offered the following amendment, which was read:

Amend the resolution by inserting after the word "committee," "or such bills as may hereafter be reported out." After discussion, Senator Wiley moved to table the amendment to the resolution, which motion was lost.

The amendment was then adopted. Senator Wiley moved to table the resolution, as amended, and the motion was lost.

The resolution, as amended, was then adopted.

SIMPLE RESOLUTION.

By Senator Clark:

Resolved, That the Superintendent of Public Buildings and Grounds be requested to start the fans in the Senate at 8 o'clock every morning.

IN THE SENATE.

(President Pro Tem. Warren in the chair.)

At 5 o'clock p. m. the committee of the whole reported to the Senate that it had risen, and desired to report progress and have leave to sit again.

SIMPLE RESOLUTION.
By Senator Taylor:

Whereas, Hon. Hugh Harris of Bell county, Democratic nominee for State Senator from the Twenty-seventh Senatorial District, is in the city; therefore, be it

Resolved, That he be invited to address the Senate, and be given the privileges of the floor.

The resolution was read and adopted, and Senators Taylor, Morrow, and McNealus were appointed as a committee in accordance with the above resolution.

ADJOURNMENT.

On motion of Senator Bailey of Harris, the Senate, at 5:30 o'clock p. m., adjourned until 10 o'clock tomorrow morning.

APPENDIX.

COMMITTEE REPORTS.

Committee Room,
Austin, Texas, August 31, 1914.
Hon. Robt. L. Warren, President Pro
Tem. of the Senate.

Sir: Your Committee on Commerce and Manufactures, to whom was referred

S. B. No. 7, A bill to be entitled "An Act to authorize the appointment of State weighers and graders of cotton in public warehouses; to further regu late cotton warehouse receipts; to facilitate the lending of money thereon; to make cotton warehouse receipts safer collateral for loan of money; to enable

The resolution was read and adopted. the farmers of Texas to obtain money

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