money or gold in order to effect the exchanges of the other things, such as food, clothing, and fuel, that are far more necessary? Mr. HEPBURN. As long as they are sending gold away for the

purpose

Mr. KORBLY. But is not the $300,000,000 of gold sufficient to effect the exchange of the larger amount of commodities?

Mr. HEPBURN. I do not think we have any too much reserve at the present time. I believe in making the banking system very strong, and so far as reserve requirements can, insure conservatism. Mr. TAYLOR. As I understand you, your handling of the reserves you speak of really promotes circulation?

Mr. HEPBURN. Yes.

Mr. TAYLOR. Without it you could not?

Mr. HEPBURN. Yes.

Mr. TAYLOR. It puts money in circulation?

Mr. MCKINNEY. I hardly like, Mr. Chairman, to go on further with this, but there are several questions I would like to ask. I will be very brief.

Mr. Hepburn, several questions have been asked you relating to the general guaranteeing of deposits of national banks, and if I have understood you in your replies, you do not see how any such arrangement could be made under the present discipline and organization and operation of national banks, and you think that in effect such an arrangement, if made, will make the greatest banker subject to the misfortunes and bad judgment of the poor banker, and it would do away with the individualism. The banks would be put practically upon a common level. Now, then, I agree with you. Would you not want to have such a system of a general character in deposits of national banks to be compelled to provide for a closer relationship between all these banks than now exists?

Mr. HEPBURN. Certainly you would. In order to protect the people who are responsible for the guarantee, to protect the strong, wellmanaged banks against the others, you would have to have closer relations. You would be making one bank practically of all the banks of the country. You would be having one big United States. bank here.

Mr. MCKINNEY. Then you would be criticized and threatened for working a monopoly.

Now, I can see how, where banks are operated as they are in Canada, where there is a parent bank and there are a great number of branches extending all over the Dominion, the parent bank and all of the branches ought to be, and are, held responsible for what happens to any one of them. But there is no such relationship existing between one national bank and another. In fact, have you not found, in times of stringency, that that was one of the great weaknesses under our national banking system, that there was no way of getting close cooperation and unity of action on the part of them; that each bank took its individual course, according to its judgment? Now, to provide or to try to provide a system for the guaranteeing of deposits among the national banks of the country, you would have to bring about a much closer contact than there is now, and then bring about under that close relationship a much greater danger of monopolizing and controlling the money market than exists to-day.

Mr. HEPBURN. I think so.

Mr. MCKINNEY. I know that I wrote a letter to the president of the First National Bank of Chicago during the trying times of 1893, asking if any way could be devised whereby banks could act in a united way, trying to equalize their surplus assets, putting it where it would be most needed; and the reply I received was that if such a scheme could be devised it would be a very useful one, but each bank was a separate entity, with its own interests, and was looking out for itself.

I do not believe I care to ask anything else.

The CHAIRMAN. Mr. McCreary, have you anything to ask?

Mr. MCCREARY. I would like to ask a question of Mr. Hepburn. Was it not one of the Western States, Oklahoma, that guaranteed deposits, with the result that there was a great deal of confusion for a while, and a great many good banks had to stand by the weaker banks?

Mr. HEPBURN. I can not state explicitly just what the experience has been there. All I know about it is the occasional comments I have seen in the newspapers, which might not be correct.

Mr. MCCREARY. That was all I wanted to ask. I have nothing

more.

The CHAIRMAN. Mr. Hepburn, have you ever made the calculation based upon the losses of the national banking system up to the present time, as to how much of a tax would have been required from the beginning to the present time to have paid all the losses of the depositors of the national banks?

Mr. HEPBURN. I have made that frequently as to the loss upon circulation.

The CHAIRMAN. No: I mean as to deposits.

Mr. HEPBURN. No. It has been made. I have seen the figures. The CHAIRMAN. It was stated at thirty-one one-thousandths of L per cent, was it not?

Mr. HEPBURN. I should think more.

The CHAIRMAN. On the total losses of the deposits?

Mr. HEPBURN. I could not say. That is very easily figured though.

Mr. WILLIS. I understood you to say that if the central banking mechanism which you thought was best could not be had, you thought a bill which would be of some benefit, at any rate, could be worked out upon the lines indicated by the Chairman, of a divisional or district reserve banking plan.

Mr. HEPBURN. Of great benefit.

Mr. WILLIS. In that event would you leave to these divisional reserve banks substantially the same powers that have been proposed for the central reserve banks, or in what respect should they be limited?

Mr. HEPBURN. I have not that mechanism sufficiently in mind so that I could intelligently answer the question. I have not evolved anything of that kind in my mind so that I can intelligently answer your question.

Mr. WILLIS. Could you answer that in the brief which you expect to file, or express an opinion on that subject?

Mr. HEPBURN. Yes, sir: if I had something tangible before me to think it out and see how the practical working would be.

Mr. WILLIS. You see the point of my question?

Mr. HEPBURN. Yes.

Mr. WILLIS. I understand you also to say that in the event of such a divisional reserve organization, you thought it might be well to have some sort of central supervising mechanism to oversee the operations of the banks?

Mr. HEPBURN. To bring them together and make whatever credit issues they made good.

Mr. WILLIS. What should be the functions of that central mechanism?

Mr. HEPBURN. That is something that I could not answer without. some thought. I have not given any thought to the working out of that plan, specifically, but it is a matter that I have had generally in mind for 30 years, first suggested by Dickinson and Wells, who were noted economists of their day.

Mr. WILLIS. It would not be necessary that that central organism should have any capital, but merely that it should be a supervising mechanism?

Mr. HEPBURN. I think so. William A. Nash, the head of the biggest State bank we have in New York, stated that if they could create a central organization here without any capital or any other function than to issue notes upon certain circumstances at certain times, it would tend to the flexibility of the currency; and his idea was that that was all that was necessary to regulate the whole thing. Mr. WILLIS. In other words, it need not do any banking business, but merely supervise?

Mr. HEPBURN. Yes.

Mr. WILLIS. Nothing has been said this morning about the idea of acceptances, except that I understood in the course of your remarks that you understood that that plan should be taken over from the European system.

Mr. HEPBURN. It would be very well if it could. If it could be popularized in this country it would be very desirable indeed. If a New York bank should report bills payable, everybody would think there was something the matter. They never do borrow money. The only way we can protect ourselves is in the stock exchange and the call-loan market, which is the only quick resource there is. If there was an overnight market for receivables and acceptances, if we could buy them to-day and we could sell them to-morrow, and have the money the next day if we wanted it, it would be very desirable.

Mr. Warburg here is an expert on that subject. He has had experience with foreign banking in that way, and I have avoided saying anything along that line for that reason.

Mr. Morawetz has given some thought to the subject of reserves, and I have avoided that.

The CHAIRMAN. With reference to the matter of reserves, I did not notice that you suggested any distinct change in the existing reserve system, but you apparently left it to be inferred that that should be continued as at present as to the existing reserves.

Mr. HEPBURN. I did not make any change, for the reason that I thought that matter would probably be better discussed, and I did not want to duplicate.

The CHAIRMAN. You did suggest, as I recall, that a greater amount of reserve would be required to be kept in the vaults of the banks.

Mr. HEPBURN. The charge was made repeatedly here that these reserves accumulate here and go to New York and are loaned on the stock exchange. These banks all over the country would have to keep enough money in New York to protect the drafts that they draw on New York. If you cut due from bank reserve and let them keep whatever reserves you do require them to keep, in their own bank, it would obviate that criticism.

Mr. WILLIS. That is your suggestion?

Mr. HEPBURN. That is one suggestion. Senator Teller had a bill here when I was Comptroller of the Currency. I did not see any objection to it.

Mr. WILLIS. Would there be any objection on the part of the banking interests if the reserve deposits were all either transferred to the divisional bank reserves, or were entirely cut off?

Mr. HEPBURN. I think perhaps there would be some objection on the part of the banks who had a large line of correspondents for whom they act as reserve agents, and who are required under the law to have reserve agents designated by the comptroller. I think there would be objection.

Mr. WILLIS. Would there be any objection from those banks that deal largely in call loans, to such a change?

Mr. HEPBURN. I do not see why there should be. I do not think it would make any material difference with the business of the country, the relations of the country; and if it did make any, it would be in the interest of strengthening the individual banks, rather than piling up money in these money centers.

Mr. WILLIS. Would it reduce the ground for the complaint that money is being loaned in the stock market-such a change as that? Mr. HEPBURN. It certainly would do away with the charge that they were loaning the reserves of these banks on the stock market. Mr. WILLIS. Would it relieve the real condition?

Mr. HEPBURN. To what extent I do not know, but the tendency would be in that direction.

Mr. WILLIS. Then you would indorse it, in the main?

Mr. HEPBURN. I can see this objection to that. I do not know how that might affect you, but if it were not for the acting as reserve agent for these various national banks throughout the country, the First National Bank of Chicago, for instance, or the City National Bank of New York, might change over to the State system and still retain all their correspondents just the same; but now a bank in New York or Chicago or St. Louis can not be the reserve agent of national banks except they are a national bank, and it might have the effect, and it might not, of causing some of the banks to go over into the respective State systems. I do not suppose you gentlemen want to reduce the number of the national banks.

Mr. WILLIS. Would it not be a good thing to reduce that number and strengthen those that remain?

Mr. HEPBURN. I would not like to answer.

The CHAIRMAN. I suppose yours is one of the banks that does not need to be strengthened, is that it?

Mr. HEPBURN. Well, I think there is a good deal of justice underlying all these popular criticisms; but there are very exaggerated ideas in regard to it, and I think anything that would meet the general criticism of the country that bank reserves were being de

posited in Des Moines, Iowa, and then in Chicago, and then in New York, and counted all along the line, and then loaned out on the stock exchange, anything that would relieve that impression, it seems to me would have a good general effect.

The CHAIRMAN. Would you have any objection to a clause in any legislation that might be put out prohibiting national banks from paying interest on deposits made with them by other national banks?

Mr. HEPBURN. Yes; I would have the general objection that it would be interfering with the individual management of the banking institution. I do not think that is wise or necessary, and I do not think it would be productive of any good. It is something that has been tried in Congress.

The CHAIRMAN. You think that would have no influence whatever in rectifying the conditions complained of?

Mr. HEPBURN. I do not think it would.
The CHAIRMAN. That is all.

You have the thanks of the commit

tee, Mr. Hepburn, for coming here.

Whereupon, at 1.10 o'clock p. m. the committee took a recess until 2 o'clock p. m.

AFTER RECESS.

The subcommittee met pursuant to the taking of the recess. The CHAIRMAN. Mr. Morawetz, I believe you want to go back to New York?

Mr. MORAWETZ. I am very sorry; I must.

The CHAIRMAN. This afternoon?

Mr. MORAWETZ. Yes.

The CHAIRMAN. We will have your statement next, if you please.

STATEMENT OF MR. VICTOR MORAWETZ.

The CHAIRMAN. Have you any banking connections?

Mr. MORAWETZ. I am a director of the National Bank of Commerce, but, of course, I speak only individually.

The CHAIRMAN. I know very well you are a specialist on this subject.

Mr. MORAWETZ. I acted for 10 years as chairman of the executive committee of the Atchison, Topeka & Santa Fe Railway System and in that capacity had principal charge of its financial affairs.

One of the members of your committee stated very truly that under our banking and currency system we have prospered beyond all other nations. Our growth in riches and in prosperity has been the wonder of the world. The banking system which has made all this possible therefore can not be wholly bad. It must have some merit. Common prudence, therefore, seems to indicate that before undertaking to modify this system in any important particular great caution and conservatism should be exercised. The need of caution and conservatism is impressed upon us doubly when we reflect upon the financial fallacies which in the past have been widely prevalent in this country among the people and, I may say very respectfully, to some extent also among our legislators-financial fallacies which, if they had been put in practice, probably would