propose to create can be or are likely to be used in such a manner as to produce dangerous overexpansion.

In this connection the experience of other countries where facilities exist similar to those which we propose will afford valuable lessons. In none of the leading countries of Europe are there any statutory limitations upon credit expansion. In fact there is no limitation whatever, either by law or custom. This is true not only of the central banks but also of the joint-stock banks of these countries. None of these banks is required by law to hold reserves. Each bank acts for itself in this respect. Of course, self-interest, custom, and public opinion lead the banks of the great commercial nations to hold cash and liquid assets as reserves against their liabilities. Their cash reserves are kept almost entirely in central institutions and not in their own vaults.

In this country we have no legal restriction upon credit expansion except such as is involved in our statutory provisions for fixed reserves. In ordinary times a bank can, by increasing its balance with its reserve agent, expand credit to the extent to which this is possible from increased reserves, and to this expansion there is no legal limit.

We believe that the bill we propose effectively guards against the dangerous abuse of the facilities created. We propose that a bank may, under certain conditions, replenish its reserves and increase its loaning powers through rediscounts. The amount of paper that can be rediscounted for an individual bank is limited, first, by the amount of 28-day paper which it has available for the purpose; and second, by the provision that the aggregate amount of such rediscounts shall not exceed the capital of the bank. Discounts of long-time paper and of the direct obligations of banks can only be made with the restrictions involved in the guaranty of the local association, and the guaranties of the local association to the Reserve Association can not in any case exceed the capital and surplus of the banks in the local association. The power given the national banks to accept properly secured drafts is limited in amount to one-half the capital of the bank.

We give to the Reserve Association effective means to check speculation and to prevent undue expansion through the power to advance its discount rate. The provision that the Reserve Association shall hold a reserve of not less than 50 per cent against all of its demand liabilities a provision which is unique in monetary legislation-and the provision that a progressive tax shall be imposed on any deficiency of reserves will, we believe, effectually discourage undue expansion of credit.

The use of a portion of the cash reserves of the banks by the National Reserve Association will undoubtedly result in a legitimate expansion of credit. This is inevitable. It is necessary, in cases of unusual demands for credit in times of panic or anticipated trouble, that the banks should increase their reserves by rediscounts, in order that they may extend assistance to those entitled to receive it. This, of course, involves expansion. We can not prevent a condition like that of 1907 without expansion on an extensive scale. The prime purpose of the legislation suggested is to provide the means for a proper expansion of credit and the necessary enlargement of note issues in times of trouble. Any unusual expansion of credit or enlargement of notes issues should, of course, be followed by healthy and legitimate con

traction, and we believe that this has been secured in the provisions of the bill submitted.

Our main reliance for preventing undue expansion must, however, be found in the wise management of the local and district associations. and the reserve association. We can not, of course, endow men with wisdom, intelligence, or conservatism by legislative enactment. The efficiency of the institution will very largely partake of the character and capacity of those who will be chosen to manage it. In the management of financial institutions the personal equation is of the utmost importance. In the last analysis the success of every banking institution in the United States and in every other country depends upon the wisdom of its management. A century of exceptionally sound and intelligent management has given to the Bank of France the enviable position which it now holds. The important place which the Bank of England holds in the financial world is due to the wisdom of the men who have controlled its operations and not to any legislative enact

ments.

We have taken every precaution to secure an honest, intelligent, and able management for the local and district associations and for the national association, and it is incredible, with the ample powers conferred by the terms of the act, that they will allow the public interests to suffer from undue and destructive expansion. There must be collusion or failure on the part of all to make such a result possible. We can not suppose that the directors of a local association would be likely to indorse the paper of an individual bank to promote speculation or when dangerous expansion would be likely to follow. The officers and members of the local association would always be fully advised of the condition of an applicant, and when asked to become responsible for its obligations we can be sure that the guaranties would be given cautiously, and would be fully secured, and that they would be refused in cases of doubt as to the character and purpose of the paper presented.

The acts of the directors of the branches and of the reserve association will be open to public inspection and will be subject to the closest scrutiny by the shareholders of the association and the public, and it is impossible to suppose that they would consent to the adoption of a policy which would be ruinous to the vast material interests which they directly represent and destructive of public and private credit. We place in their hands ample powers to prevent this disastrous result, and there can be no reason to assume that they will not exercise it properly. We believe that the very best men in every section of the country will be selected as directors of the proposed institutions.

It can not be denied that there may be possibilities of abuses, as there must be in every case of grants of power where human agencies are employed, but this possibility should not lead us to refuse to create the facilities imperatively demanded for the progress and prosperity of the American people, facilities which are enjoyed by the producers of every country competing with them for the world's markets.

If we as a people should adopt the policy of discouraging the use of every invention or of refusing to avail ourselves of every discovery in the arts and sciences on account of the possibility that abuses might grow out of their use or that their acceptance might disarrange the established order of things, we should unwisely place an insuperable obstacle in the pathway of national progress.

The commission appreciates the magnitude of the duties assigned to it of constructing a monetary system that will provide for the present and future welfare of the American people. The questions involved in this problem affect the vital interests of the people of every class and every section. We were required to devise a system so comprehensive that its beneficial effects will be felt equally by wage earners, farmers, manufacturers, and all others engaged in productive industries, a plant which will inspire hope and confidence in all those who are responsible for the uninterrupted progress and prosperity of a great people.

The far reaching consequences of fundamental changes in a monetary system were graphically expressed by Sir Robert Peel in his opening statement with reference to the English bank act of 1844. He said:

"There is no contract, public or private, no engagement, national or individual, which is unaffected by it. The enterprises of commerce, the profits of trade, the arrangements made in all the domestic relations of society, the wages of labor, pecuniary transactions of the highest amount and of the lowest *** the command which the coin of the smallest denomination has over the necessaries of life, are all affected by the decision to which we may come on that great question which I am about to submit to the consideration of committee."

The adoption by the British Parliament of the minister's proposals established an important landmark in the history of monetary legislation.

In the construction of an adequate monetary system for the United States, the task of the commission was rendered more difficult from the fact there were no precedents that we could follow, and no system in existence that to any considerable extent could be made applicable to existing or prospective conditions in the United States.

We were therefore obliged to originate a plan which would answer the exacting requirements of American conditions that would meet the needs of a progressive nation, with its hundred millions of energetic and enterprising people, whose development has been impeded by a defective and inefficient monetary system. The plan we propose is essentially an American system, scientific in its methods, and democratic in its control.

A BILL TO INCORPORATE THE NATIONAL RESERVE ASSOCIATION OF THE UNITED STATES, AND FOR OTHER PURPOSES

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the National Reserve Association of the United States be, and it is hereby, created and established for a term of fifty years from the date of filing with the Comptroller of the Currency a certificate of paid-in capital stock as hereinafter provided. It shall have an authorized capital equal in amount to twenty per centum of the paid-in and unimpaired capital of all banks eligible for membership in said National Reserve Association. Before said association shall be authorized to commence business two hundred million dollars of the capital stock shall be subscribed and one hundred million dollars of its capital shall be paid in cash. The capital stock of said association shall be divided into

shares of one hundred dollars each. The outstanding capital stock may be increased from time to time as subscribing banks increase their capital or as additional banks become subscribers or may be decreased as subscribing banks reduce their capital or leave the association by liquidation. The head office of the National Reserve Association shall be located in Washington, in the District of Columbia.

SEC. 2. Upon duly making and filing with the Comptroller of the Currency the certificate hereinafter required the National Reserve Association of the United States shall become a body corporate and as such and by that name shall have power—

First. To adopt and use a corporate seal.

Second. To have succession for a period of fifty years from the Idate of said certificate.

Third. To make all contracts necessary and proper to carry out the purposes of this act.

Fourth. To sue and be sued, complain and defend, in any court of law or equity, as fully as natural persons.

Fifth. To elect or appoint directors and officers in the manner hereinafter provided and define their duties.

Sixth. To adopt by its board of directors by-laws not inconsistent with this act, regulating the manner in which its property shall be transferred, its general business conducted, and the privileges granted to it by law exercised and enjoyed.

Seventh. To purchase, acquire, hold, and convey real estate as hereinafter provided.

Eighth. To exercise by its board of directors or duly authorized committees, officers, or agents, subject to law, all the powers and privileges conferred upon the National Reserve Association by the

act.

SEC. 3. All national banks, and all banks or trust companies chartered by the laws of any State of the United States or of the District of Columbia, complying with the requirements for membership in the said National Reserve Association, hereinafter set forth, may subscribe to its capital to an amount equal to twenty per centum of the paid-in and unimpaired capital of the subscribing bank, and not more nor less; and each of such subscribing banks shall become a member of a local association as hereinafter provided. Fifty per centum of the subscriptions to the capital stock of the National Reserve Association shall be fully paid in; the remainder of the subscriptions or any part thereof shall become a liability of the subscribers, subject to call and payment thereof whenever necessary to meet the obligations of the National Reserve Association under such terms and in accordance with such regulations as the board of directors of the National Reserve Association may prescribe.

The subscriptions of a bank or trust company incorporated under the laws of any State or of the District of Columbia to the capital stock of the National Reserve Association shall be made subject to the following conditions:

First: That (a) if a bank, it shall have a paid-in and unimpaired capital of not less than that required for a national bank in the same locality; and that (b) if a trust company, it shall have an unimpaired surplus of not less than twenty per centum of its capital, and if located

in a place having a population of six thousand inhabitants or less shall have a paid-in and unimpaired capital of not less than fifty thousand dollars; if located in a city having a population of more than six thousand inhabitants and not more than fifty thousand inhabitants, shall have a paid-in and unimpaired capital of not less than one hundred thousand dollars; if located in a city having a population of more than fifty thousand inhabitants and not more than two hundred thousand inhabitants shall have a paid-in and unimpaired capital of not less than two hundred thousand dollars; if located in a city having a population of more than two hundred thousand inhabitants and not more than three hundred thousand inhabitants shall have a paid-in and unimpaired capital of not less than three hundred thousand dollars; if located in a city having a population of more than three hundred thousand inhabitants and not more than four hundred thousand inhabitants shall have a paid-in and unimpaired capital of not less than four hundred thousand dollars, and if located in a city having a population of more than four hundred thousand inhabitants shall have a paid-in and unimpaired capital of not less than five hundred thousand dollars.

Second. That it shall have and agree to maintain against its demand deposits a reserve of like character and proportion to that required by law of a national bank in the same locality: Provided, however, That deposits which it may have with any subscribing national bank, State bank, or trust company in a city designated in the national banking laws as a reserve city or a central reserve city shall count as reserve in like manner and to the same extent as similar deposits of a national bank with national banks in such cities.

Third. That it shall have and agree to maintain against other classes of deposits the percentages of reserve required by this act.

Fourth. That it shall agree to submit to such examinations and to make such reports as are required by law and to comply with the requirements and conditions imposed by this act and regulations made in conformity therewith.

The words "subscribing banks" when used hereafter in this act shall be understood to refer to such national banks, and banks or trust companies chartered by the laws of any State of the United States or of the District of Columbia, as shall comply with the requirements for membership herein defined.

SEC. 4. The Secretary of the Treasury, the Secretary of Agriculture, the Secretary of Commerce and Labor, and the Comptroller of the Currency are hereby designated a committee to effect the organization of the National Reserve Association, and the necessary expenses of said committee shall be payable out of the Treasury upon vouchers approved by the members of said committee, and the Treasury shall be reimbursed by the National Reserve Association to the full amount paid out therefor.

Within sixty days after the passage of this act said committee shall provide for the opening of books for subscriptions to the capital stock of said National Reserve Association in such places as the said committee may designate. Before the subscription of any bank to the capital stock of the National Reserve Association shall be accepted, said bank shall file with the organization committee or after organization with the National Reserve Association a certified copy of a reso