The surplus of the National banks is 92 per cent of their capital, and strange and fortunate to say, excluding the Mutual Savings bank, the surplus of all other state banks is exactly 92 per cent of their capital.
That is, the National banks have $1,983,000,000 capital and surplus to insure $5,825,000,000 individual deposits and $2,178,000,000 due to the other banks, or a capital and surplus to all deposits of nearly 25 per cent, while all the other banks have $2,010,000,000 capital and surplus to insure individual deposits $5,089,000,000 and $454,000,000 due to banks, or a little over 24 per cent. Insurance expressed in capital and surplus, therefore, is about equal, but a great and serious divergence comes, as we have seen, in the average cash reserves of the two classes of banks.
Mr. Manufacturer: This is the weakness of the present situation from the standpoint of reserves, and some of the states are beginning to realize the importance of protecting the well-conducted banks from the consequences of those recklessly or dishonestly managed; and they are passing laws compelling all persons or firms doing a banking business to submit to State supervision and control. They are compelling them to incorporate their business within a reasonable time. These States do not propose to have the innocent depositors swindled through a misuse of funds; nor do they propose to permit bankers to so conduct their banking business within their borders, that they can, if they so desire, commit gigantic frauds, or by the misuse of the people's deposits, bring on bank panics and a complete paralysis of business. I think that Ohio has just passed such a law and that Illinois is about to put the same kind of a statute into operation. The people of all the states are beginning to understand that banking is a quasi-public business, and that the banker, though not strictly speaking a trustee, is in fact a quasi-trustee, and must conduct his business upon that basis.
Mr. Banker: Mr. Manufacturer, you are quite right in what you have said, but you have not gone far enough; nor as far, I am sure, as you will be inclined to go when I have outlined the necessity of a police regulation of the banking business, from a National rather than from a State point of view. Just stop and think the matter over. To use your own observation with regard to the action of the state, no one will deny that a state has the right to supervise every person, firm or corporation that takes deposits under the name of bank, or banker, with a view of protecting the people against foolish or dishonest bankers. By the same course of reasoning, the United States, or National Government, has the right, and it is clearly its duty, to protect one state against the unwise and dangerous course of some other state and one section of the country against misconduct in the banking business in some other section of the country. Bad banking is not only a local mishap, but a national misfortune. Nine-tenths of the country might be under such supervision and control of its banking business as to insure practical immunity from such conditions and practices as breed panics and the remaining tenth be so conducted as to preclude the possibility of a day's freedom from the danger of a commercial cataclysm.
Will anyone say that such a condition should continue for a day, or a year, or for ten years, or for a hundred years, or for a thousand perchance, because the general Government has no right or power to act in the matter for want of constitutional authority? Let me ask you, Mr. Lawyer, whether there is anything that will so certainly conserve the peace, the prosperity and the "general welfare" of the United States as a sound and uniform financial banking system extending over the whole country.
Mr. Lawyer: I certainly cannot conceive of anything of so much importance as a sound and uniform banking system for the whole country. If there is one single factor in our life that is distinctly national in its character and scope, it is this.
During the past week, I devoted much time to that phase of this question, because, as we have gone along during the last two or three months, and this problem has been under discussion, I have become more and more impressed with its vast importance, and above all with its distinctly national character. I have not butted in tonight, as you will observe, as I was anxious to see how you gentlemen would treat this subject of Reserves, whether from a standpoint of individual banks, or from the standpoint of the community, the commercial center, or our country as a whole, or upon the broad proposition that gold today constitutes the world's banking reserves and that we are a very great part of that commercial world. For my own part, I had come to the conclusion that there could not be a system of reserves established that would be efficient and of the highest use, and really protective unless it were national in its extent, and universal in its application. Therefore, realizing the absolute necessity of some common power to control all reserves, in order to compel each bank to perform its part by carrying its share of the burden that commerce imposes, I have been unable to find any solution, except in a uniform national system; and why not? Certainly the National Government could compel every bank to carry certain specified reserves, and failing to do so to pay a tax of 10 or 20 per cent per annum upon all deposits not so protected; that is, upon all deposits in excess of the required reserve. This could be done under the taxing power of the Government, precisely as a tax of 10 per cent was put upon all bank notes. Would any patriotic banker refuse to coöperate with his fellow bankers in such a reform, unless he wanted some unfair advantage by compelling the other bankers to carry his load for him?
You gentlemen will remember that the National Government was given jurisdiction of the Postal Savings Banks under these words which it was understood at the time were written by the President: "Sixty-five per cent of the deposits could remain with the banks as a working balance, and also a fund which may be withdrawn for investment in bonds or other securities of the United States, but only by direction of the President, and only when in his judgment 'the general welfare' and the interests of the United States so require." Similar words could be used with regard to a per cent of the surplus of the banks, and if the one was tenable, certainly the other would be especially so, since the latter involves seventeen billion of individual deposits, of which six billion four hundred and eighty million ($6,480,000,000) are savings deposits. Again Article I, Section 8 of the Constitution, empowers Congress "to regulate commerce with foreign nations and among the several states and with Indian tribes."
Upon this clause of the Constitution rests the Anti-Trust Law. What have we not done under this clause of the Constitution and the general welfare clause?
We have passed the Food and Drugs Act, giving the Government power to stop the use of poisonous substances in food products and drugs: