speeches · May 17, 1916
Speech
Charles S. Hamlin · Chair
RETROSPECT
On Friday* March 31st, 1916, thirty-eight Cleveland
bankers gathered at luncheon at the Union Club on the invi
tation of Colonel J. J. Sullivan. The majority of those
present, and some other bankers, had previously subscribed
their names to the following:
The importance of the City of Cleveland, and
the financial prestige which it enjoys, would seem
to warrant the opinion that there should be some
unifying factor in the banking fraternity of our City.
In many cities of our country there exists an
admirable cohesiveness as a result of association in
Bankers* Clubs, where representatives of banks meet
their fellows, and while breaking bread together,
exchange views not only on questions relating to the
business of banking, but also on the larger questions of
governmental policies and principles relating to agri
culture, commerce and industry.
Believing that such an organization in Cleveland
would exercise a beneficial influence on this city and
on our country, the undersigned do hereby agree to
become members of a club to be formed for this
purpose under the name of The Bankers Club of
Cleveland, and to conform to such rules and regula
tions as may be adopted for its government.
Upon the suggestion of the Chairman that a motion to
proceed to a permanent organization would be in order, Mr.
P. H. Goff made the motion that the meeting proceed to a
permanent organization, and that Colonel Sullivan be elected
by acclamation as the first President of The Bankers Club of
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Cleveland. The motion was seconded by several gentlemen,
and despite the protest of the Chairman, was put to a vote
by Mr. Goff, and carried without other dissenting voice.
Subsequently a committee was appointed to nominate
permanent officers other than the President, and another com
mittee to draft rules and regulations for the government of
the Club.
At an adjourned meeting on April 14th, the Articles of
Association and By-laws which appear on subsequent pages
of this year book were adopted, and the officers named on
the following page were elected to serve until October 1st,
1917.
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OFFICERS
President: J. J. Sullivan
Vice-Presidents: Thos. H. Wilson, Harris Creech
Secretary: Edwin Baxter
Treasurer: A. H. Seibig
EXECUTIVE COMMITTEE:
The Officers and George A. Coulton, J* Arthur House
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FIRST DINNER
At the Union Club, Thursday, May Eighteenth, 1916
Post-Prandial Proceedings
PRESIDENT SULLIVAN. The gentlemen will be in
order. First of all, I would suggest that you all rise and
unite with me in drinking a toast to the President of the
United States.
[At this point the orchestra began to play, and the audi
ence joined in singing a stanza of “The Star Spangled
Banner/']
We have several telegrams here, which we will not read;
we have one, however, from the secretary of the American
Bankers Association, addressed to your president, which we
will read to you:
"Congratulations upon organization of the Bankers Club
of Cleveland, and I wish for the club all success and many
repetitions of the first dinner. Regret previous engagement
prevents my being with you all. (Signed) Fred E. Farns
worth/*
It is certainly most gratifying to see so many of the
members and their friends present with us at this first social
function of the club, and it affords me great pleasure, gentle
men, to extend to you a most cordial welcome. Thus far I
think you have enjoyed yourselves. That your response to our
invitation has been so generous—we have one hundred and sev-
enty-five gentlemen here—speaks volumes indeed for your de-
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votion to the importance and advantages of our organization.
The motives governing the organization are not to gratify sor
did greed, or, as a humorist stated it, to decide what shall be
done, who shall be done and how we shall do him. The articles
of association state the purpose of the club to be “the promo
tion of cordial relations between its members, the dissemina
tion of information of value to the membership through
speakers” such as we have here on my right and left “and
otherwise, and the discussion of subjects relating to the busi
ness of banking, as well as questions of governmental policies
and principles relating to agriculture and commerce and in
dustry.” We are not at all narrow in our views. We are patri
otic American citizens, and when the business of agriculture
and commerce and industry shall prosper, to that degree will
the banker prosper.
That the banking fraternity is in hearty accord with the
motives prompting the organization, is much in evidence by
your presence here tonight. Bankers as well as those engaged
in other lines or industrial activities realize the importance of
closer affiliation and harmonious action. As the deposits in our
banks, which indeed are the cornerstone of the banking struc
ture, are demand obligations—this is pretty generally the case
—it is quite essential that the bankers acquire and possess at
®11 times the most reliable data and keep in close touch with
the trend of the times.
We hear a great deal at present about preparedness. The
idea of preparedness is not new with the banker, as it is ever
present in the daily routine of his business. So important
indeed is preparedness considered in banking, that the law of
the land compels bankers to be prepared at all times, in the
w&y of sufficient reserve to meet their obligations. “Be ye
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always ready/* is a Scriptural injunction with which the bank
manager is entirely familiar.
I am sure it is not necessary to say a word to disabuse
your minds of the idea that the banker is the cold-blooded in
dividual depicted by men who are strangers to the profession.
Some man down in the state—and it is not often that our
Ohio men £rr to the degree which is in evidence here—said of
the banker, “He sits in his office and discounts his neighbors*
notes and pockets the interest in the cold-blooded atmosphere
of selfish calculation.” That is the estimation in which you
are held by some gentlemen who, of course, are strangers to
your business. They describe the banker as being a creature
of legs and baldness; legs, they say, to enable the banker to
straddle political fences, and baldness superinduced by the
strenuous effort to enable the banker to land on the right side
of the fence at the right time.
On the contrary, the banker is, by the very nature of his
calling, not only a law-abiding citizen, but a patriot, who is
the defender of the national honor as well as a practical advo
cate of peace just so far as it is compatible with the preserva
tion of honor and safety. He stands for loyalty to our coun
try and to its flag. He also stands for preparedness for war
in the spirit which makes for peace.
It is not my purpose this evening to speak of prepared
ness, but I cannot refrain from mentioning the wonderful
parade on Saturday last in New York City, as an expression
of the sentiments of our people. It was the largest demon
stration of its kind in American history. Representatives of
all leading activities in the life of that great city devoted them
selves to the labor of the day with splendid energy, because
they believed that our country is worthy of protection. Of
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course it is. It expressed the spirit and the will of the people
of New York; and the whole country indeed, in regard to
national defense. If more along that line is necessary to
impress the congressional mind, it can and will be forthcoming.
It has been the custom of the banking fraternity during
the last thirty years on occasions of this kind to discuss the
currency question and resolve, in good English, that the
banking and currency system of our country should be im
proved, and that the old system was defective and un
scientific in its operation. After an agitation of nearly
thirty years, the National Banking Act has been super
seded by the Federal Reserve Act, which became a law
a short time ago. The new system provides for a board
of seven, who shall have full control in the application of the
law to the business of the country. It also provides for a
Governor to preside over the deliberations of the board. With
a unanimity of sentiment, the business people of New England
as well as the country over intuitively turned to one man, and
as a result the President, in his great wisdom, made the ap
pointment.
It has been said that, next to the founding of a govern
ment, the execution of the laws of a country is one of the
greatest responsibilities devolving upon man. The Federal
Reserve Board, under the guidance of its Governor, has exe
cuted this new law in such a satisfactory and pleasing manner
that it is now accepted by every one as being the most im
portant financial legislation enacted in our country since the
Civil War.
I have great pleasure indeed in introducing the Head
Master of Finance—that is what he is—the Head Master of
Finance of all these United States, and our guest of honor, the
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Governor of the Federal Reserve Board, the Honorable Charles
Sumner Hamlin, who will speak to you on the Federal. Rer
serve Act.
MR. HAMLIN. »Mr. President and gentlemen, I can
not tell you what a pleasure it is to me to come here tonight
and to see again this beautiful city after an absence of nearly
twenty-five years. When my dear friend Mr. Sullivan wrote
me and extended me your courteous invitation, I at first did not
see how I could possibly accept, so great was the number of
our engagements. But Mr. Sullivan I have known for a
great many years. We fought together year after year in the
National Board of Trade, when I was a representative of the
Boston Chamber of Commerce, and I knew that when Mr.
Sullivan made a request it was useless to argue the question,
it was much better to gracefully accept at.once. I accordingly
canceled all counter-engagements, and I can assure you what a
pleasure it is to be able to be here and to talk to you, very
briefly, tonight.
I must, at the outset, confess to a feeling of almost rever
ential awe when I enter the State of Ohio, and when I think
of its contribution to the statesmanship of the nation. There
instinctively come to mind the names of those eminent ex-
Presidents, President Hayes, President Garfield, President
McKinley, my personal friend, and last, but not least, also
my friend, whom we all know and love, William H. Taft
of Ohio. But there are many other eminent men that
this state has furnished; if I should attempt a mere
cursory mention of their names, it would be a work of hours.
Some I have had the pleasure of knowing; with some I have
the pleasure of a close friendship. I only wish I could have
met here your distinguished citizen, the present Secretary
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of War, Mr. Baker, a very close friend. I wish I could have
seen here tonight Senator Pomerene, who ably represents this
great state in the United States Senate, and, I want to say,
his ability, his prescience, his work was a powerful factor in
the enactment of the Federal Reserve Act. I wish I could
have had the privilege of paying my respects here to another
eminent citizen, Senator Harding. I can only say that in the
short time that he has served as Senator, he has already made a
deep impression and has shown great ability in the public serv
ice. I wish also I could have seen here my friends, Senator
Burton and Governor Herrick, and Governor Harmon. I would
also like to have seen again ex-Secretary Garfield and renew a
friendship of many years—but I realize that they are all busy
men and that such a fruition of all my hopes would be too
much to expect.
I have great pleasure, however, in coming here, in renew
ing two old friendships* One of these friends is a classmate
of mine; if there were no one here but us two, I should call
him "Harry” Edwards, but I should hardly dare to address
him in that way now. I fully appreciate the sacrifices he has
made to come here tonight at my urgent request, or shall I
say* command, but I can assure him that those sacrifices will
be quickly swallowed up in the greater sacrifice of having to
listen ten or fifteen minutes and hear what I have to say.
And it is also a great pleasure to come here and meet
again ex-Congressman Bulkley. I want to say to you, I want
to pay him a tribute of respect and admiration for the ability
^ith which he has served you in Congress, and I want to say
that his hard fighting quality, his ability, was a powerful fac
tor in enacting into law the Federal Reserve Act, concerning
which I want to speak to you very briefly tonight.
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It must be a pleasure to all of us as we gather around the
table tonight to realize the prosperous condition of these
United States. I think it is fair to say that never in the his
tory of our country has there been such general prosperity as
there is today. We have practically become, for the time
being, and I earnestly hope for more than the time being, the
banker of the world. We are slowly but steadily establishing
dollar exchange, so that we shall be able to finance our import
and our export trade, and even assist in financing the import
and the export trade of the world.
It is hardly necessary for me to say to you that I am a
thorough optimist, especially under present conditions, but I
want to say to you that in the time of our greatest prosperity
we should give careful thought and conservative thought as to
what we are to do for the future, and I think the banks of this
country have the situation well in hand. I think they are to
be congratulated upon their conservatism and care lest out of
the abundance of prosperity may come unlooked-for adversity.
I believe that this conservatism will keep the United States
in the forefront of the prosperous nations of the world.
The Federal Reserve System has now been in operation
about a year and a half. We see resources of $530,000,000;
we see gold and legal tender of over $320,000,000 accumulated
in the vaults of the Federal Reserve System. We see reserve
deposits alone on last Saturday of over $427,000,000, and that
is largely increased today by the recent payment of the reserve
requirement due this last week. I think it must be a source
of pride to every citizen of this great State also that it has
one of the twelve great Federal Reserve Banks, the Federal
Reserve Bank of Cleveland. And I want to say to you that
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I am proud to come to this city and testify to the respect and
admiration we all have for the group of men who are manag
ing this great bank. I am sure that in the Chairman of the
Board, Mr. Wills, you have one of the best equipped men in
the United States. I know that in Governor Fancher a better
man could not be found in the United States. I think I have
a right to say that, because I chased him over a good portion
of the United States to corral him, and make him say that he
would come into the Federal Reserve Bank of Cleveland, and
it was no easy task, but I think the Federal Reserve Board,
*and the people of this great State, are to be congratulated
that he was willing to assume that burden.
I need not speak a word of the Deputy Chairman of the
Board, Mr. Treadway, for you all know him and you all re
spect him; nor need I speak of Mr. Rowe, of the Federal
Advisory Council, also one of your directors, one of the best
equipped men for that position in the United States. There
may be other directors here, I know personally only of one,
my friend Mr. Wolfe, and I want to say that the manner in
which he is performing his services on your Board of Directors
reflects the greatest credit on the best citizenship of the State
of Ohio. It is not necessary for me to mention another direc
tor who is present here today, Mr.. Rankin. I am only sorry
that the whole Board could not be here today to hear the
tribute of admiration and respect that I am ready here to pay
to them.
Now, following the inauguration of the Federal Reserve
System, we see, as I have said, wonderful prosperity; we have
seen a crop movement that was merely an incident, although
I think crop movements in the past, in our history, could
hardly be referred to under the term “incident.” They have
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been more or less exciting and anxious incidents* but I believe
never again in the history of this country will they be more
than a passing event which will hardly be worthy of comment,
in view of the resources and capabilities of this great system.
We have witnessed another surprising fact. It was felt
that the rates of discount fixed by the respective Federal Re
serve Banks necessarily would vary very much over the United
States, and when we originally fixed the first rates there was
considerable variation, But I am glad to say that, following
perhaps some unknown economic law, there is a gradual ap
proach to a uniformity in rates in the Federal Reserve Dis
tricts of the country, and without too much exaggeration we
may say that they are almost or practically uniform today
throughout the United States.
When the Federal Reserve Act was being adopted, there
was great fear expressed over the power given to the Federal
Reserve Board to order a Federal Reserve Bank to re-discount
for another bank. I heard learned debates that would almost
draw tears to your eyes as to the wrongfulness of taking the
assets of a well-managed bank and turning them over to a
bank perhaps less providently managed. There were dire pre
dictions of disaster. We have, however, gone through a period
of severe strain and stress in the last two years, and not one
of the Federal Reserve Banks has as much as asked for a re
discount from another bank. In fact many of the banks have
been almost annoyed because other banks would not ask for
a re-discount. Many of the banks have said to us, “Now, we
think there will be some requests for re-discounts, and we ask
that we all be let in on the ground floor, on the principle of
fair play, because if there are to be any re-discounts we want
our share.” We told them that that was a fair, democratic
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principle, and that if any Reserve Bank should ask for a re
discount, they all would come in on an absolutely equal foot
ing, and they were satisfied.
Coincidentally with the growth of the Federal Reserve
System, we have also seen the steady growth of the National
Bank System* The capital of the National Banks in the last
year has increased a little, about $700,000; the number of the
banks has fallen off, I think, by about thirteen, and most of
those were consolidations. But we can say that during the
last year more banks have entered the National system than
have left it, leaving out consolidations of existing banks, and
that is very interesting, because we see so much in the papers
of the National banks being in such a feeble minority com
pared with the State banks and trust companies of the United
States. They certainly are in some districts, but I think it
will surprise you when you look at the whole United States
and see how the National Bank System has developed in the
last year.
In the first place, if we take the aggregate resources of all
the National banks of the United States, we find that they
are three times the resources of the 14,500 State banks in the
United States, and they are two times the resources of the
2,700 trust companies and loan companies and private banks.
on the other hand, we look at the aggregate increase of
resources, we find that the aggregate increase of the resources
of the National system in one year has been greater than the
three years' aggregate increase of the State banks, trust com
panies and savings banks of the United States. We find that
the ratio of increase in one year of the National system is five
times the average ratio in three years of the State banks, trust
companies and private banks of the United States.
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I think any one who considers these figures will realize
that the National bank system is not waning, it is waxing.
I believe it was never more powerful than it is today, and I
look forward to increasing prosperity, and I hope for favor
able action by Congress in liberalizing National Bank charters
and putting them more nearly on an even level with their com
petitors, the State banks and trust companies of this nation.
Now, when you think of our prosperity today, it is not
such a far cry to go back to August, 1914, and think what
then the United States was facing. After the beginning of
the war you remember what happened; the declining exports
of commodities, the increased exports of gold, diminishing
trade,—everything pointed to a panic compared with which
the panic of 1907 would hardly have served as a respectable
understudy. The Federal Reserve Board, as one of its first
acts, before the banks were opened, was appealed to by the
banks of the United States to raise a gold fund to meet our
obligations on the continent, and we found there was a current
indebtedness of five or six hundred million dollars, which had
to be paid in gold to sustain the credit and honor of the United
States. The bankers came to the Reserve Board, and they
said, "It is for you, gentlemen, to take the leadership, the
banks of the country will follow you,” and we issued a call,
as you remember, for a $100,000,000 gold fund. We appor
tioned the amount among the various Reserve cities, and you
all know the result—instead of $100,000,000, $110,000,000 of
gold came pouring in almost by return of post, and if we had
asked for $200,000,000 or $300,000,000 of gold, the patriot
ism of the banks would have furnished it over night.
We also established a fund of $135,000,000, the so-called
Cotton Pool fund. Out of that vast amount we used in one
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transaction the sum of $27,000, and many said the Cotton
I*ool fund was a failure* I don't call it a failure to raise a
fond of that amount and have it so suddenly and psychologic
ally turn distrust into confidence that out of $135,000,000 only
$27,000 had to be used; and that was the effect, in the restora
tion of confidence and building up the shaken faith of our
Southern cotton-raisers, that that cotton fund produced.
Then, you remember, to stem the panic or to stop the
panic we had recourse to the issue of over $300,000,000 of
so-called Aldrich-Vreeland notes. But what is not generally
remembered is that the Federal Reserve Act fundamentally
changed and liberalized the conditions under which the
Aldrich-Vreeland notes could be issued. It permitted a larger
issue in the first place, it removed many burdensome restric
tions, it lowered the rate of taxation, which up to that time
had absolutely made it impossible to issue those notes until a
panic had got so far advanced that almost no issue could have
checked it. But the Federal Reserve Act reduced the rate
of interest, removed the burdensome restrictions, and we were
able to pour those notes out into circulation.
But beyond all that, there was confidence engendered in
the people of the United States from the knowledge that the
Federal Reserve Banks would shortly open, and that when
they opened we should see a release in reserve requirements
amounting to five or six hundred million dollars, with the
whole strength of the Federal Reserve system behind it. That
restored confidence, and that brought back the country to the
stage from which by gradual advancement it has finally
reached the culminating point of prosperity, I think I can
conservatively say, in the history of the United States.
Now, a great many people speak of panics, and they ask,
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“Can there be any more panics under the Federal Reserve
system?” Well, my friends* I can’t conceive how there could
ever be again a currency panic under the Federal Reserve
Act, because the Federal Reserve Board and the banks have
power to cope with that question, and I don’t believe it could
ever arise again. Nor can I conceive how there could be a
universal collapse of credit again, because the powers that
have been given under the Federal Reserve Act are such that
I believe that we can safely and unhesitatingly and confidently
cope with that situation. And if ever again a panic of the
dimensions of that of 1907 should steal into the United States
and read the Federal Reserve Act, it would pack its tents
like the Arabs and would silently steal away.
The Federal Reserve Act, as you know, not only re
quired the National banks to come in, but it opened its doors
freely for the admission of the State banks. Now, the Federal
Reserve system, to my mind, is an unqualified success. It
will do all that was predicted that it could do. One dis
tinguished economist, in speaking of that act the other day to
me, said, “I verily believe it is fool-proof,” and he said that
was the greatest compliment he could give to any possible
legislation.
But, successful as the system is, you gentlemen here,
largely trained bankers, know that the broader the base the
broader the scope and usefulness of the system.
We have heard a great deal in the last few months of
preparedness, and I need scarcely say that I am an enthu
siastic advocate of preparedness, whatever # the cost. We
are prepared under the Federal Reserve Act. Congress
has prepared this great country either for war or for
peace; but, my friends, sometimes there are greater defeats
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in peace than in time of war. So far as financial preparedness
is concerned, however, our system will insure that. But I want
to remind the State banks and trust companies that are doing
a commercial business, that we have or will have, I hope, in a
few days, a bill settling forever military preparedness, a bill
which provides for a regular army and depends on the co
operation of the militia of the states, and if the militia does
not give it that helpful, faithful co-operation, the system can
not succeed—I want to remind them that the Federal Reserve
Act is based on the theory that ultimately the State banks and
trust companies will come into that system, and it is their
patriotic duty to contribute to financial preparedness by
coming into that system and broadening its base, enabling us
more efficiently to cope with the difficulties, the great difficul
ties that are bound to face us in the future when this war is
over.
The Federal Reserve Board has prepared regulations for
the admission of State banks, and they have been most liberal,
they have gone to the very extreme. The banks can come in
and can still loan on real estate, we simply ask that their loans
remain in a reasonably liquid condition. They can come in
with all their branches, and they become and are today mem
ber banks, competing with National banks, and some of them
have ten, fifteen or twenty branches, and no National bank
can ever have any, except in a qualified way of which I shall
speak in a minute. We permit them to come in, and we
accept the examination of the State bank authorities. And I
want to pay a compliment to the excellence of your State ex
amination in this great State of Ohio. If the State examina
tion of every State in this Union were up to the standard of
Ohio, we should have a far higher standard of banking in this
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country* Many of the State hanks are permitted to engage
in domestic acceptances. They come in and that right is not
touched. Many of them are permitted by the laws of their
states to carry National bank notes or Federal Reserve notes
in their reserve, and we permit them to come in with that right
unhampered. We even, by special regulation, provide that
any State bank which has entered the system, can, on giving
reasonable notice, if it doesn’t like it, turn around and leave
the system at will but I will make the prediction, however,
that having once entered, those banks will never turn around
to see whether the door behind is open or shut.
When I was delivering an address a short time ago, a
State banker put me the question, “If it is true that there
will never again be a widespread panic in the United States,
why should the State banks come in? Why should they con
tribute their resources, and perhaps submit themselves to some
burdensome requirements, if there is never going to be an
other panic?” I replied to him, "Assume that you had been
examined by a physician who told you that you were in perfect
health, what would you say if you announced to your friends
that being in perfect health there was no necessity for your
ever taking out life insurance? I think people would look at
you with a pitying smile.” And I said, ''Suppose the people
of a municipality were discussing a plan to put in an adequate
fire system, and some one should say that he had made a Na
tional report to the effect that there could never be a universal
fire which would destroy the whole country, and that therefore
we need no fire system for our locality?” I think that rea
soning would be faulty. We never will have another universal
collapse of credit, but we are going to have times of stringency,
and I am willing to make the prediction, in all good nature,
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that when those times of stringency come, we are going to see
a bread line of hungry State banks and trust companies knock
ing at our door for admission. They have got to come in or to
establish a parallel reserve system of their own, because the
system of consolidated reserves is a sound system, and they
have got to resort to it or suffer in the future as they have
suffered in the past. But if they put off the day, when the
time of pinch comes they may find that they are not in as
liquid condition then as they are today, and it may not be as
easy of entrance into the Federal Reserve System as now,
when we welcome them with open arms.
Now, it is unnecessary for me to point out to you the
advantages of the Federal Reserve system, but merely to
enumerate perhaps some of the defects,of the old system which
the federal Reserve Act was enacted to cure* As you know,
under the old system, the National system, we had 7500
independent banks, each with its scattered independent re
serve, There were 7500 banks, some strong, some weak, some
beautifully managed, some poorly managed. There was no
cohesive force, no union; each bank had to fight for itself in
time of trouble; there was not a corporal, there was not a
lieutenant, or a captain or a colonel or a general of the group;
they were simply so many individual units. They all had re
serves, but by some peculiar law which I never could wholly
understand, although they had reserves, if they used them it
was illegal, and it depended only on the good nature of the
Comptroller of the Currency to keep him from putting a re
ceiver into the bank which had committed the crime of using
the reserve which the law said it must keep for emergencies
of that very kind. To my mind it was almost like a man
dying of starvation, looking through a plate glass window and
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seeing every delicacy in the way of food, with a sign on it,
“This food is for you; you may look at it, you may enjoy its
fragrance, but under no circumstances can you taste a morsel.
And that was literally the legal reserve situation in the United
States at the time of the enactment of the Federal Reserve
Act. And then, when times of trouble came, the banks had to
take care of themselves. I heard it said the other day that
the country banks, so-called, although I hate to use that term,
have never had much trouble in taking care of themselves in
times of panic. That is perhaps true, but in times of trouble
you would see the country banks piling up reserves of from
30 to 70 per cent. But what becomes of their customers?
They were the ones that suffered. Now, that cannot happen
again under the Federal Reserve Act, and I believe there is
no more gruesome spectacle in the world than the sight of a
frightened bank hoarding its resources, turning its customers
away at the time when it ought to turn its resources into the
market and save the industrial lives of those very customers.
And when the people see the frightened banks hoarding their
resources, the people naturally get all they can and put it in
their vaults and their pockets, and you see the private hoard
ing which I believe will never occur again under the beneficent
provisions of the Federal Reserve Act. When the banks dis
counted a piece of paper, what did they do with it? They
lowered it tenderly in their vaults and sealed it up, as if they
were funeral vaults filled with dead paper, until it was resur
rected on maturity day. And if any bank president would
take that paper out before maturity and surreptitiously try
to sell it, if he was caught in the act you would in some parts
of the country, almost point the finger of suspicion at that
president. Under the Federal Reserve Act that is all changed.
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A fundamental postulate of the Federal Reserve Act is that re
discounting is righteousness; it is the very foundation of the
whole Federal Reserve system.
We had and still have a national bank currency tied to gov
ernment bonds, a currency supposed to meet the expansion and
contraction and the needs of trade and commerce, yet actually
expanding and contracting according to the relative fluctuation
in the price of government bonds. We saw a national bank
currency tied to government bonds—a currency supposed to
be responsive to business needs, tied to government bonds
which represented the destruction of business and property in
the last generation. We saw the national bank currency of the
Twentieth Century tied to the evidence of destruction of
property in the Nineteenth Century. There may have been a
reason for that in the Nineteenth Century, from the desire to
make a market for government bonds, but that reason has
ceased, and we have now put in its place a flexible, sound
system of currency, the Federal Reserve notes, which I believe
will redound to the greatest advantage of the people of the
United States.
Now, the Federal Reserve Act, as you all know, con
solidates the reserves of the banks. Each bank has to put into
the Federal Reserve Bank a portion of its reserve, and in
times of trouble, when its vault reserve is falling, it takes its
discounted paper, not dead but quivering with life, across the
street to the Reserve Bank, and it has credit, or gold, or paper,
or whatever it desires. It can have its cake and eat it too. It
can discount the paper and on request we will turn that paper
into gold; and it is no wonder that with that strength behind
*t, the banks of the country feel confident today as they never
felt before.
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Now, a good many of our friends didn't exactly favor the
principle of the Federal Reserve system* Many able, con
scientious men preferred one central bank. You remember
the splendid work that was done by the Aldrich Monetary
Commission. They went all over the world, and got together a
library of financial information that never had been accumu
lated in the world’s history before. They drafted with won
derful skill a bill providing for one central bank at Wash
ington, with fifteen branches throughout the United States.
But the provisions of that bill—the defects of that bill were
not in the marvelous skill with which it was put together.
There wasn't any doubt that such a system would work, be
cause undoubtedly it would have; it was simply that the peo
ple of the United States felt that in essence that bill was
founded on the principle that banking is a private and not a
public business. Under that bill the great central bank was
absolutely controlled by the banks of the United States, and
there was only a limited control in the public interest. The
act would have worked, it was drawn most skilfully, but there
was that feeling that banking was not strictly a private busi
ness, it was as well a public business, which must be regulated
in the interests of the people of this country; and that bill,
skilfully as it was prepared, was never actually brought to a
vote in either the House of Representatives or the Senate of
the United States.
Now, the Federal Reserve Act, as you know, is founded
on the principle that banking is in essence a matter of public
interest, and that the people of the United States have a right
to have some fair regulatory control over the bank and over its
operations. Now, we have got twelve banks, you can’t say
that there are twelve central banks perhaps, but X think they
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closely resemble in their powers twelve central banks. But if
any one should feel that there should be one central bank all
over the United States, managed in Washington, I want him
for a moment to consider the size of some of those twelve
Federal Reserve banks. In the first place, the Federal
Reserve Bank of Chicago serves a population of over twelve
millions of people, greater than the population of Norway,
Sweden and Switzerland combined. I think you will see that
that is a very respectably sized central bank. If you turn to
area, if you will go out to the Federal Reserve Bank of San
Francisco, you can take that Federal Reserve area of San
Francisco, you can put in it Great Britain, Ireland and Scot
land, then throw in continental France, then throw in the
whole of continental Italy, then add to that the whole area
of the continental German Empire, and you will have an area
left over in the Reserve District of San Francisco larger than
all New England excepting only the state of Maine; and I
think you will realize that that is a very respectably large
sized central bank from the point of view of area.
You know the stockholders of these banks are the banks
themselves. You know they are given a certain six per cent
dividend. The banks are allowed to accumulate a reasonable
surplus, and the Government, as a franchise tax, takes all the
rest. So you see the deep interest that the Government has.
But more important than that, all this vast accumulation
of funds held by the Federal Reserve Banks is absolutely im
pressed, every dollar of it, with a trust. It is held in trust
for the benefit of the agriculture, the business and the com
merce of the United States, and it is forever divorced from
the call loan market. Now, think what that means to busi
ness, to agriculture and to commerce! No longer can that
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money be poured out on Wall Street on call loans. But prior
to the Federal Reserve Act the call loan rate was a barometer
of the financial strength or weakness of the country. Now,
when the Federal Reserve Act is really in operation, indeed
you might say today, we look on the call loan rate with only
a languid interest. The call loan used to be the center ring
of the financial circus; today it is relegated to the side tent,
along with the bearded lady and the fat boy.
It is unnecessary to talk at any length of the powers of
the Federal Reserve Board. They are great and ample, and
I can assure you that they will be exercised for the best inter
est of the greatest number of the people of the United States.
I can’t tell you how we appreciate the help and encourage
ment that comes to us in every mail from all over the United
States. Every letter that is sent to us is carefully read and
carefully considered, because we are dependent on the people
of the United States for help and for information and for
suggestions* and I can assure any of you who will give us that
help or those suggestions* that it will be most gratefully re
ceived.
Now, there has been some criticism of the Reserve Bank
System. Some say, as I have said, that they prefer a central
bank. I know of nothing that a central bank could do that
the twelve independent Federal Reserve banks cannot do just as
well and in my opinion better. I have had one or two petulant
men come in and say, "We wish we could go back to the old
system/’ I remember some years ago, when some foreigners
were lynched in a certain part of the United States, and their
minister took up the question with our Government, he was
told that most of them had taken out papers and were Ameri
can citizens* and he looked into the matter, and it is said that
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he reported to his Government that he had made investiga
tion and found that that statement was true, that all but one
of them were American citizens and entitled to all the privi
leges as such. Now, any man that wants to go back to the
old troubles and trials and nervous anxiety of the crop move
ment, the stress of the panic, any man that wants to go back,
I would say let him go back and be entitled to all the privi
leges that that would give him, if only the rest of us could
keep the present benefits of the Federal Reserve Act.
Some complain that there is a loss of interest on their
deposits when turned into the Federal Reserve Banks. But,
my friends, you ought to set against that lost interest what you
have gained in the lower reserve requirements, and what you
can gain by loaning out that money which is released, and I
think you will find that it is at least equal to what you have
lost*
Some presidents come in and say, "There is so much red
tape/’ and that they hold little, if any, discountable paper.
I alway ask such a man to run over his portfolio with me,
and he generally finds that much of his paper is eligible
for discount, and that he would be received with open arms
in the Federal Reserve Bank. Sometimes we do find that he
has little if any eligible paper, and in such cases I advise him
to call his directors together and bring that bank back to the
status of a commercial bank, from which it has evidently very
far wandered* Some complain of lack of dividends. Well,
my friends, if there is any banker here who knows of any
large bank that could earn its dividends the first year of its
management, I would like to know of it. They tell me it takes
two or three or sometimes four or five years. But I will make
this prediction here tonight, with perfect confidence, that in
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a very short period the Federal Reserve Banks will have no
difficulty whatsoever in earning their dividends and in paying
all cumulative arrearages of dividends. That is the very least
thing that we have got to worry about; I regard that as abso
lutely certain and fixed.
Now, the Federal Reserve Board, as I have said, want to
liberalize the National Bank Act. We have suggested some
amendments to Congress. We want the National Banks to be
given the power of domestic acceptance as well as acceptance
in the foreign trade, under reasonable regulations, and I think
that will be one of the greatest boons to the people of the
United States and as well to the banks, that has ever been
enacted into legislation, if that becomes a law. I want to see
the National banks given power to establish branches within
their own cities. We have also favored an amendment of the
law so that National banks can subscribe to the stock of foreign
corporations doing foreign business abroad, and we believe
that is absolutely necessary, when we consider the task con
fronting the United States in the near future, when this
unhappy war shall happily be at an end. We have asked that
the power of the national bank be liberalized so that it can
lend to at least a limited extent on real estate, city property,
as well as on farm land.
We hear objections coming in as to the plan for check
clearings and collections recently put out by the Federal Re
serve Board. Now, there is much criticism, and many banks
say they are going to lose very largely in exchange charges,
and they say that apparently this is going to be for the benefit
of a few banks at the expense of the other banks, and they say
that a fair test of the Federal Reserve system is not the large
bank but the average bank; and I heartily subscribe to that
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doctrine. But I can say to you that the Federal Reserve
Board never for a moment intended to put into operation any
system that would benefit a few banks at the expense of the
many* They felt, on the other hand* that they were putting
a system into operation which in the long run would be for
the advantage of all the banks. But they felt that behind the
banks there is another interest in the United States, and that
is the interest of the people of the United States; and we put
out that system of check clearances because we believe it will
redound to the prosperity of the people generally by parring
their checks, and we know that when the people are prosper
ous the banks must be prosperous, as the night follows the
day or the day the night. Now, that is the theory. It is a
subject of great anxiety to us that any of the banks tempo
rarily are going to lose by this system. But I want to point
out to them that in my opinion those banks will see, as a re
sult of this system, a great increase in their deposits. We
are going to see an Old Home Week in deposits, and we are
going to see the merchants who keep deposits all over the
United States, bring them back to their own home bank;
their checks will be at par all over the United States, and
we believe that will redound to the greatest interest of the
people.
But be that as it may, Congress has enacted this law. It
has placed upon our Board the duty of establishing this clear-
ing system. We could have gone to the extreme. Many have
pressed on us the claim that under the Federal Reserve Act it
was the duty of the Federal Reserve Board to take every check
at par and give immediate credit to the depositor, and charge
that check instantly off against the bank on which it was drawn,
without its even knowing that the check had been presented
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or the condition in which its reserve was left. The Federal
Reserve Board did not go to that extreme. It said, “No, we
will give you immediate credit, not to be availed of until the
collection is made, and we will send each check to the bank on
which it is drawn, and it will make it good, and then we will
credit it to the man who put it in.” We have even said that if
you have to ship cash to us, the Federal Reserve Bank will pay
the entire charge of shipping. We firmly believe that in many
instances this exchange charge does not represent an actual
service rendered. It was the will of Congress that that plan
should be adopted, and it is the duty of the Federal Reserve
Board to carry out the command of Congress. But we will
do it in the most careful manner. We will be delighted to
receive suggestions from every banker and merchant in the
United States, and we will meet you half way, and we will
mitigate any severity which can or ought to be mitigated.
I have forgotten so many things that I ought to have said
to you, that it reminds me of a little railroad in New England,
the Boston, Barre and Gardner Railroad. The peculiarity of
it was that it didn’t begin at Boston, it didn’t go through
Barre, and never reached Gardner. Now, I began my speech
by forgetting some of the most important points, so I didn't
start from Boston. I have forgotten a good many other
things, so I didn't go through Barre, but the anxious look on
your president's face satisfies me that I have reached Gardner,
and, thanking you for your attention, I take my seat.
PRESIDENT SULLIVAN. Gentlemen, in considering
the matter of speakers for your entertainment at this our first
social function, your committee, with an admirable unanimity,
turned to Governor Hamlin. We succeeded in persuading him
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Cite this document
APA
Charles S. Hamlin (1916, May 17). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19160518_hamlin
BibTeX
@misc{wtfs_speech_19160518_hamlin,
author = {Charles S. Hamlin},
title = {Speech},
year = {1916},
month = {May},
howpublished = {Speeches, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/speech_19160518_hamlin},
note = {Retrieved via When the Fed Speaks corpus}
}