Speech

Pan American Financial Conference ADDRESS OF CHARLES S. HAMLIN Governor of the Federal Reserve Board BEFORE THE PAN AMERICAN CONFERENCE MAY 25, 1915 WASHINGTON GOVERNMENT PRINTING OFFICE 1915 ADDRESS OF CHARLES S. HAMLIN, GOVERNOR OF THE FEDERAL RESERVE BOARD, BEFORE THE PAN AMERICAN CONFERENCE, TUESDAY, MAY 25, 1915. Mr. CHAIRMAN AND GENTLEMEN: This Conference of the sovereign nations of the Western Hemis- phere with the Secretary of the Treasury of the United States is an event of deep significance to the whole civilized world. If your deliberations are successful it will not only add to the prestige of the nations involved and to the distinction of the dele- gates, but, as well, it will add another achievement to the many already to the credit of the Secretary of the Treasury, and will place another laurel wreath upon the brow of the President for his vic- tories in the cause of peace. The scope of your deliberations, necessarily limited to the subjects assigned for discussion, need have been limited only by the confines of human knowledge. When we consider the achievements of the nations whose representatives are gathered here we realize what a wealth it constitutes, for you could speak with authority upon the. achievements of your citizens in the realms of science, philosophy, art, music, education, history, medicine, or international law, as well as upon the questions you have come together to discuss. That limi- tations necessarily had to be imposed upon your deliberations, thereby restricting them to the field of commerce, transportation, and finance, is perhaps, after all, an advantage, for to discuss the many important contributions to the world's advancement made by those nations would require such time that from the very nature of things it could not be given. • I take it that the object of every government is to secure the greatest good of the greatest number of its people, and I believe the world realizes to-day that the prosperity of the people of one nation, in the long run, tends to the prosperity of those of other nations, while the adversity of one people must ultimately tend to the adver- sity of others. Just as the individual prospers best when his country prospers, so the nation prospers best out of the prosperity of all nations. [Applause.] In past centuries this great truth was not realized. On the con- trary, it was boldly advanced by thinkers and philosophers that each man is arrayed against his fellow man; that the gain of the one is the exact measure of the loss to the other; that competition be- 96327-15 3 f".; 4 PAN AMERICAN FINANCIAL CONFERENCE. ADDRESS OF CHARLES S. HAMLIN. 5 tween individuals, whether in warfare or in commerce, must ulti- amount of gold it would take from them, but long before that point' mately mean the destruction of the weaker and the gain of the could be reached the importation of gold would so raise prices as to stronger. So, also, it was believed that as between sovereign nations effectually stop its exports. the precise measure of the gain to one from international trade was Trade, as now generally recognized, means buying as well as sell- the measure of the loss to the other. ing, and in so far as this conference has to do with trade and with Fortunately, however, such doctrines have not survived, and when the means and methods for increasing trade, it has to do with the in- occasionally they show their heads above the surface they are recog- crease of buying as well as with the increase of selling. nized as but temporary deviations from well-established rules of We all recognize to-day the real interdependence of nations; they action. The world recognizes to-day that sympathy and cooperation are especially interdependent from the aspect of trade and commerce. are the most powerful factors in working out the social and indus- The nation of large resources recognizes that in the long run it is for trial welfare of the individual, and that the same principles apply its own profit to strengthen this interdependence by furnishing the to the relations of one sovereign nation to another. nation of smaller resources means to meet trade indebtedness to it. Furthermore, the fact so cogently pointed out by Adam Smith, the It should never be forgotten, however, that in the long run this in- great economist, that both nations gain by dealings in international debtedness must be met by the shipment of goods, whether from the trade is now accepted by all nations as a guiding principle, although, debtor country or from some other country, for its account, to the to be sure, many nations have somewhat obscured the principle by creditor country. the levying of customs duties upon imports far above any possible The question, however, which must be foremost in your minds is need, either for revenue or for industrial development. just what the United States can do in assisting other nations to It is also true that the nations to-day are beginning to recognize finance their trade movements, both with the United States and with that they have products, whether of agriculture or manufacture, the other nations of the world. As to the amount of capital at pres- which they can create in such quantities that they are obliged to seek ent available in the United States for such purposes and the work- and obtain for them, or for a portion of them, foreign markets. ing out in detail of any specific plans or suggestions it is not my They further realize that they must accept, in great measure, as pay- province to speak. I shall leave that field open to the delegates as- ment for their exported products, goods imported from these coun- sembled here, and especially to my colleague, the Honorable Paul M. tries purchasing their exports or from other countries for their Warburg, who can speak with the authority of a master on every account. In other words, speaking generally, every bale of goods detail of international finance. [Applause.] exported from a country must be paid for by a bale of goods im- The message which I wish to bring to you to-day, however, is that ported into the country. The actual payment may be made by the the United States was never before in such a position as it occupies delivery of so-called "bills of exchange," but these bills of exchange, to-day to reach out and extend its trade by granting credit to those in a very large measure, are but symbols of property or are a claim nations who wish to be its customers. for money based upon the sale of property. The merchant ships his The dislocation of foreign trade caused by the present war fur- goods abroad, but he sells the bill he draws upon the foreign pur- nishes the United States with a great opportunity, inasmuch as chaser to some domestic bank, and these bills, representing property, nations which for generations have had the relation of purchaser and are used to offset similar bills drawn by foreign sellers against im- seller now find these relations disrupted. ports into the country. If the exports and imports of the country The United States also has but recently placed itself upon a sound do not furnish bills of exchange enough to balance, then gold or its financial foundation by enacting a new banking system, which, to- equivalent is used or, perhaps, loans, but these latter play a relatively gether with the reform laws already enacted. I believe will constitute minor part in international exchanges. one of the strongest systems in the world. [Applause.] It would be impossible for a country to shut itself off from other Furthermore, the new system of banking inaugurated by the Fed- countries and still hope to continue its exports, receiving payment in eral reserve act has provided an opportunity to our people of financ- gold instead of in goods. If we assume—what is impossible of real- ing our foreign trade. It has economized the use of credit and capi- ization—that any country could shut off its imports and continue to tal. It has increased its efficiency, which will enable us, as I have export, receiving gold for its exports, within a very few years it said, to engage in financing trade _movements with and between for- would cripple the exchange system of all foreign countries by the eign countries, which will do much to build up our international trade 6 PAN AMERICAN FINANCIAL CONFERENCE. ADDRESS OF CHARLES S. HAMLIN. 7 exchanges, particularly with the great nations whose representatives refuse to renew or make new loans during the stringency. The are here assembled. necessary result of this procedure was to make the stringency even This leads naturally to consideration of the banking system which more severe, and the hoarding of its resources by the individual has lately been organized under the Federal reserve act. In order banks quickly led to hoarding by individuals, thus throwing the to understand the changes brought about by the new banking system whole banking system into confusion and ruining thousands of mer- we must briefly consider what the former system was, its defects, and chants who were unable to obtain the assistance to which under how these defects have been remedied in the new system. ordinary circumstances they would have been clearly entitled. Prior to November 16, 1914, when the new Federal reserve banks During the latter part of the panic of 1907 it was found that opened their doors, we had approximately 7,500 banks in the United some banks which by law need carry only 15 per cent reserves were States chartered by the National Government, and having the sole actually carrying reserves of between 40 and 50 per cent of their right to issue notes known as national-bank notes. The capital and deposits, while in 1914 the reserves of some banks amounted to 70 surplus of these banks was a little under 2 billions of dollars, and per cent. It is also a most significant fact that at the height of that taken in connection with their deposits represented a banking power panic over 200 millions of dollaTs in cash were being carried by the of over 9 billions of dollars. There were also over 20,000 State banks, banks, in their vaults and with their reserve agents, in excess of trust companies, and savings banks, chartered by the respective States, their legal requirements. If these 200 millions of resources could representing a capital and surplus of a little over 2 billions of dollars, have been used for the common benefit, such a panic would not have and including deposits, representing a banking power of over 14 taken place. billions of dollars. Under our old system the banks of the United States were in the These banks, both National and State, were independent and iso- position of an army entering into action as a disorganized body of lated, except as to a limited interdependence of some State institu- individuals, without a single officer and without a single company, tions through stock ownership. They together constituted over 30,000 battalion, regiment, or brigade. That our oft-recurring panics under individual units, between which in times of financial stress effective the old system did not involve more of our banks and their customers cooperation was impossible. in general ruin is one of the wonders of financial science and is a Leaving out of consideration for the moment he State banks, great tribute to the marvelous recuperative powers and unrivaled there were in the United States over 7,500 independent units called resources of our people. national banks, each, as I before stated, having the power of note Under our old financial system—or, rather, lack of system—every issue and each bound to keep in its vaults and with 'other national dollar loaned by' a bank on commercial paper was a dead investment, banks in certain cities, called reserve cities, a reserve fixed by law. as if buried in the ground, until the day of maturity. The paper, Under the national-bank act, however, these reserves were, in effect, when discounted, was lowered into the vaults of the bank with almost sealed up and could not lawfully be used, even in times of financial funereal ceremony; in fact, the national banks were but mausoleums stress. A bank whose lawful reserve was below the legal limit was for dead commercial paper, and if a bank president with ghoulish bound to restore it, and if it was not restored within a specified time propensities were to open the vaults and try to dispose of any of the Comptroller of the Currency could place a receiver in the bank. the paper stored there, before its resurrection on the day of ma- The merchants and farmers of the country were often refused turity, the act would have been looked upon with suspicion. Is a credit—the very essential of business life—and, yet they could see result, when a bank had made all the loans it could its power to aid these sealed-up reserves, ample for relief purposes, and yet denied its customers absolutely ceased, and many a merchant of high stand- them. They were in the position of a man weakened by hunger ing and good credit had to be refused further assistance, to his looking through a plate-glass window observing every kind of food injury and possible disaster. which he is told is for his benefit, and yet no morsel of which can Every bank had to arrange so that some of its resources should be he under any circumstances be permitted to eat. invested in so-called liquid assets, so that in times of financial stress As a result, in times of financial stringency, each bank had to pro- they could instantly realize upon these assets. As a result funds tect itself regardless of the condition of other banks, and had to which otherwise might have been loaned to farmers and merchants fortify itself against its demand obligations by piling up reserves were sent to the large financial centers of the country to be there far above the prescribed limit. To do this it had to call loans or invested in call loans upon stock exchange collateral—that is to say, 8 l'AN AMERICAN FINANCIAL CONFERENCE. ADDRESS OF CHARLES S. HAMLIN. 9 upon bonds, stocks, and other securities which represented no com- and the expression now so frequently heard—dollar acceptances-- mercial transactions, but -which, in many cases, simply represented was merely an ideal as far removed from practical realization as the sS.c ulative activities. NVhen, however, in times of stress these loans IS is distant from the earth. had 0 be called it was often found that what was considered to be a For example, we buy large quantities of raw and manufactured IIs t liquid asset was, for the time being, no asset at all—as witness silk from the Orient. This sOk goes direct to the Pacific ports of the period in the summer of 1914, when these so-called liquid assets our country ; it is taken overlaml by special train. The bill of ex- were absolutely debarred from sale by the closing of the stock change, however, drawn for the selling price, sIrawn upon a foreign exchanges. bank and is sent,t ogether with the bill of lading and other documents, Furthermore, under the old system the national banks issued so- east to London, or it may even pass through the United States on its called national-bank notes, which were originally designed 0 con- VVay to the foreign bank upon which it is drawn, later to be returned stitute an elastic currency, rising and falling in response 0 the de- 0 the United States for final discharge of the obligation of the pur- mands of agriculture and commerce. Unfortunately, however, these chasers in this country. nI•s had no such elasticity as was thus ascribed 0 them, because of The lack of cooperative union or confederation between the indi- the fact that their issue was not controlled by or based upon business vidual banks and their reserves also weakened the ability of the development; on the contrary, these notes were indissolubly chained I. nks to conserve the supply of gold, the standard of value in the to Government bonds, which had to be pledged with the Government United States, and as a result the movement of the precious metals as collateral. These Government bonds were neither issued nor regu- from the country, even when in strict accordance with the laws of lated by the expansion or contrattion of trade and commerce. They traS. and of ultimate advantage 0 the Unithd States, was looked were fixed in amount and fluctuated in value nI fixed ratio 0 the upon with anxiety as a symptom of financial trouble, causing uncer- development of those branches of business. As a fact, it was the fluc- tainty and lack of confidence. tuation in value of these bonds which influenced the expansion or I have tried to show some of the defects which existed under our cI ntraction of the national-bank notes rather than an expansion former system—the lack of cooperation between the individual banks, or contraction in business. When business slackened and contrac- the lack of any system by which the reserves could be either used by tion of these notes was desirable, the notes responded but feebly, and the individual banks or consolidated in0 a common fund for the in some cases actually increased in amount; while, on the other hand, benefit of all the banks, the impossibility of rediscounting com- when expansion was desirable to accommodate increasing trade, the mercial paper once discounted by the banks, its lack of liquidity, nI.s at times actually decreased; and at other times when they anS the consequent necessity for investment of part of the bank's responded 0 the need for expansion the response was so belated as assets in call loans as the most liquid investment possible, the lack 0 take effect only when the necessity for the expansion had ceased. of a genuine elastic currency, and, finally, the lack of power to This alliance of national-bank notes with Government bonds was a finance our foreign trade through the loaning of credit by means of strange one. The national-bank notes, supposed to be a measure of acceptances. the development and expansion of trade, were linked to and gov- The question naturally arises just how the Federal reserve act has erned by the fluctuation in value of these bonds, which represented remedied these conditions, placing the United States upon a firm war, the destruction of trade, and the past dire necessities of the II nking foundation. I shall try 0 answer this question briefly. Government. Thus these national-bank notes, intended to represent It should be clearly understood that the Federal reserve act does the progress and development of trade and commerce of the twentieth not add a dollar of money to existing stocks held by the banks or by century, were linked to the evidences of destruction of trade and the peopk, and also that, while it gives the national banks some commerce of the nineteenth century. There may have been a reason valuable new powers and privileges, it does not change their inher- for this strange alliance in the nineteenth century owing to the neces- ent structure or their present charters. sity for finding a market for Government bonds, but in this twentieth Just what, then, has the Federal reserve act accomplished? While century there is certainly no good reason for its continuance. the act is a long one, containing much minute detail, its underlying Furthermore, under the old system the national banks were not princiI's are simplicity itself. able to finance our foreign trade, because under the law they could In the first place, it divides the United States into 12 districts, each nIt lend their credit in the form of acceptances. As a result our district containing approximately from 500 to 700 national banks. foreign trade had to be financed in L555n and on the Continent, 10 PAN AMERICAN FINANCIAL CONFERENCE. ADDRESS OF CHARLES S. HAMLIN. 11 The national banks in each district unite in forming a new bank In addition the Secretary of the Treasury may deposit the gen- called the Federal reserve bank, to which each national bank contrib- eral funds of the Treasury—excepting only certain trust funds-- utes 6 per cent of its paid-up capital stock and surplus to provide the with the Federal reserve banks,a nd disbursements of the Government may be made by checks drawn against such deposits. ' necessary capital. The individual capital of these 12 Federal reserve banks varies, re- The national banks in the 12 respective districts (and Statt spectively, from a little under 5 millions to a little over 20 millions of banks which may join the system later) are the only stockholders dollars. The total capital of the 12 banks (not counting State insti- of the Federal reserve banks, and their stock can not be transferred tutions which may ultimately become members) is a little over 100 or hypothecated. The stock is entitled to a 6 per cent annual cumu- lative dividend, and one-half the net earnings of the Federal reserve millions of dollars. At the present time only one-half of the capital payments have banks may be paid into a surplus fund until it amounts to 40 per been called, and the total paid in by all the national banks amounts cent of the paid-up capital stock. All net earnings over and above this dividend and surplus are to a little over • 50 millions of dollars. We thus have 12 Federal reserve banks with a total capital of over paid to the United States as a franchise tax. 50 millions of dollars paid in and about as much more subject to call Each Federal reserve bank is managed by a board of directors, by the Federal Reserve Board when and if needed. This capital, consisting of nine members, of which three are appointed by the Fed- under the terms of the Federal reserve act, has been paid in gold or eral Reserve Board and six are elected by the member banks, three of the six directors representing the banks and three consisting of mem- gold certificates. bers who at the time of their election were actively engaged in com- The 12 Federal reserve districts vary greatly in area and in popula- merce, agriculture, or some other industrial pursuit. tion. For example, the Federal reserve district of Chicago has a These 12 Federal reserve banks are under the control and direction population of over 12 millions of people, exceeding the combined of the Federal Reserve Board, consisting of the Secretary of the populations of Norway, Sweden, and Switzerland. Treasury and the Comptroller of the Currency, ex officio, and of On the other hand, the area of the Federal reserve district of San five other members appointed by the President and confirmed by the Francisco (683,852 square miles) is so extensive that you could place Senate. within it England, Scotland, and Ireland, the whole of continental The Federal Reserve Board sits in Washington, D. C. It appoints, France, Italy, and Germany and still have left an area exceeding that as I before said, three directors on the board of each Federal reserve of all the New England States combined, excepting only the State bank; it has general powers of supervision and examination of the of Maine. Federal reserve banks and the member banks; it may suspend or In addition to the capital payments I have before mentioned, each remove, for cause, any director or officer of the Federal reserve banks; national member bank is obliged to pay to its Federal reserve bank a it may suspend the operation of any Federal reserve bank and liq- certain portion of its legal reserve, which portion, however, it still uidate or reorganize such bank; it defines the paper which may be counts as part of its reserve. These payments of reserves are spread rediscounted by Federal reserve banks; it has power to review and over a period of three years, and the total payments will amount to determine the rates of discount established from time to time by over one-third of the total reserves held by the national member the Federal reserve banks for the discount of commercial paper banks. offered by the member banks; it regulates the open-market powers Up to the present time about 295 millions of reserve money has of the Federal reserve banks; it has power to suspend every reserve been thus paid to the 12 Federal reserve banks, and at the end of requirement of the act if it deems such course necessary; and it has three years over 400 millions will have been paid in, which latter many other specific powers which I need not mention here. amount will be, of course, greatly increased by the admission of Each Federal reserve bank is independent of every other. They State banks and trust companies. At that time all the reserves of the are empowered, however, with the permission of the Federal Reserve member banks must be held in their vaults or with the Federal re- Board, and at rates fixed by the board, to rediscount the discounted serve bank, the privilege of keeping their reserves in part in approved banks in reserve cities ceasing at the end of that period. This will paper of any of the other Federal reserve banks, and can be required necessarily largely increase the amount of money deposited by the to do so by the affirmative vote of at least five members of the Fed- eral Reserve Board. member banks in the Federal reserve banks. 12 PAN AMERICAN FINANCIAL CONFERENCE. ADDRESS OF CHARLES S. HAMLIN. 13 The act also creates a body known as the Federal Advisory Coun: made by the United States Government—is impressed with a trust, cil, one member of which is elected by each Federal reserve bank. in that it must be used (excepting as to certain open-market invest- The duties of the council are to confer with the Federal Reserve ments) only for the discount of paper issued or drawn for agricul- Board and to advise it as to matters connected with discount rates, tural, industrial, or commercial purposes, whether in the domestic or note issues, reserve conditions, open-market powers, and similar foreign trade, and can never be invested in on loaned upon specula- questions. tive securities or even upon real estate transactions. I have thus given a skeleton outline of the Federal reserve system. The second fundamental defect in the old system which I have Many details I have had to omit for fear this address would take on pointed out was the lack of a really elastic currency. The Federal the quality and length of a treatise or textbook. I think, however, reserve act remedies this defect by providing for the gradual pay- that what I have outlined will give a fair understanding of the ment and cancellation of the national-bank notes, and, further, by scope of the system. giving authority to the Federal Reserve Board to issue to Federal The question remains as to how the Federal reserve act remedies reserve banks applying therefor obligations of the United States the defects which I have outlined as characteristic of the old system. known as Federal reserve notes. The bank obtaining such notes must The first fundamental defect of the old system pointed out by me deposit with one of the Government directors, known as the Federal was that each national bank was independent, and that as a result reserve agent, as collateral commercial paper approved by the regu- we had 7,500 independent banks and 7,500 scattered reserves, no lations of the Federal Reserve Board up to the face value of the notes effective cooperation being possible, nor could the individual reserves thus issued, and in addition must maintain a gold reserve of 40 per even be drawn upon legally by the very banks which owned them. cent against such notes. These notes will constitute a truly elastic cur- This defect is remedied under the Federal reserve act through the rency, rising and falling with the rising and falling of agriculture, capital and reserve deposits placed by each member bank with its trade, and commerce. No limit is imposed upon their issue. Such a reserve bank. These payments constitute a substantial fund—already note could conceivably be issued against every commercial or agricul- about 350 millions of dollars, and constantly growing—which must tural transaction represented by commercial paper which has been be used by the Federal reserve banks for the benefit of the member discounted by member banks. When, however, the commercial paper banks and their customers—the people of the United States. liquidates itself, and the maker uses the funds received from the These funds are held for use in discounting commercial paper transaction to pay off the note, the Federal reserve notes issued offered by the banks for discounting acceptances and for certain open against that paper must be returned and canceled, or the amount of market investments which I shall not undertake to enumerate to-day. the notes thus paid must be retained by the Federal reserve agent Any bank desiring funds can take its commercial paper to the Fed- against the Federal reserve notes until they are returned Sand can- eral reserve bank and obtain gold or lawful money in exchange. celed. This privilege enables a bank to loan freely in times of commercial The Federal reserve notes will also serve to protect the gold supply stress and to draw down its available resources far below what would of the United States, for much of it, sooner or later, will go into the have been considered prudent under the old system, for the commer- vaults of the Federal reserve banks and Federal reserve notes will be cial paper discounted by the banks under the new system is as good issued in its place. as gold, as it can be turned into cash or a cash credit at once at the The Federal reserve act also authorizes national banks, for the first Federal reserve bank upon request. This privilege also makes com- time, to accept bills of exchange growing out of the import and ex- mercial paper a genuinely liquid investment, whereas under the old port trade under certain reasonable regulations, and the Federal re- system such investments were absolutely dead until the day of ma- serve banks are also authorized to discount such acceptances. This turity. Such commercial paper is far more liquid than a loan upon grant of power is a most valuable one and will enable our banks to investment securities, for the loan upon commercial paper pre- finance our foreign trade by loaning their credit upon these accept- sumably liquidates itself, as the borrower receives from the con- ances. By this grant of power the so-called "dollar acceptance" is summation of the commercial transaction—to assist which the note made for the first time possible, and this means much for the future was originally discounted—the money with which to pay it. development of our trade, especially with the great nations of Cen- It should, moreover, be pointed out that every dollar paid into the tral and South America, and will add much to our ability to assist Federal reserve banks by the member banks—including all deposits them in financing their sales to and purchases from the United States. 14 PAN AMERICAN FINANCIAL CONFERENCE. ADDRESS OF CHARLES S. HAMLIN. 15 The Federal reserve act, however, has done much more to help The banks have been greatly strengthened by these reforms and make possible closer trade relations with foreign countries. The have enlarged their power to grant discounts to their customers both Federal Reserve Board is given power to permit national banks to in domestic and international trade. establish branches in foreign countries, and it is at once apparent I believe the result will be of lasting advantage and benefit, not what a great assistance this will be, not only to the United States only to the people of the United States but to the people of all but likewise to the great nations who are trading with the United nations which engage in trade with us. States, especially those whose delegates are assembled here. Branches I have tried briefly to outline just what the Federal reserve act has of national banks have already been authorized in Argentina, Brazil, done for us, and to show how,i ncidentally,i t may be of great advan- Panama, and other countries, and it is confidently expected that a tage to all nations that trade with us. There remains only to con- great development in our trade relations with such countries will sider the practical application of the principles of the act to the result. [Applause.] great problems of commerce, transportation, and finance which you The Federal Reserve Board is also authorized to permit the Federal are called together to consider, and these problems will be considered reserve banks to open and maintain banking accounts, appoint corre- by you in conjunction with our own delegates, who are, it is needless spondents, and establish agencies in foreign countries, for the purpose to add, chosen men, representing the highest ability in practical of purchasing and selling bills of exchange arising out of commercial banking, and who represent as well the highest type of our transactions; these banks are also authorized to deal in gold coin and citizenship. bullion at home and abroad. It is easy to see what power the Federal I am sure that it will be the earnest prayer of all the people of Reserve Board, through the Federal reserve banks, will thereby have, our country, and of the great nations whose delegates are here in connection with its power over discount rates, over the movement nssembled, that our deliberations shall be crowned with successful of the precious metals-into and from the United States. achievement. [Prolonged applause.] These great powers can and will be exercised in such a manner as to encourage and assist in every way the growth of the volume of 0 trade between the United States and foreign countries. I think it will be realized, as I have before stated, that, growing out of this new banking act, the time has come for a marvelous de- velopment in our foreign trade, especially with South America, and that an opportunity is given to finance that trade such as has never been possible before. [Applause.] The resources of the Federal reserve system will also be greatly augmented in the future by the addition of large resources con- tributed by State banks and trust companies, which the act permits to join the Federal reserve system under reasonable regulations. I venture to express the hope that within the near future the majority of the strong State banks and trust companies doing a commercial business will join this system. • The Federal reserve act economizes the use of capital; it makes its use more effective than under the old system; by lowering the pre- scribed reserve requirements it has released hundreds of millions of capital which will provide additional credit; by its rediscount pro- visions and by the powers given to the Federal Reserve Board to suspend reserve requirements in cases of necessity it has practically made a financial panic of the type we went through in 1907 an impossibility.

Charles S. Hamlin (1915, May 24). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19150525_hamlin

@misc{wtfs_speech_19150525_hamlin,
  author = {Charles S. Hamlin},
  title = {Speech},
  year = {1915},
  month = {May},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19150525_hamlin},
  note = {Retrieved via When the Fed Speaks corpus}
}