Will any one say that with such supervision as this board of control will give to the banks of the commercial zone, each bank having been compelled to qualify in the outset—will any one say, I repeat, that such supervision will not absolutely prevent bank failures?
This is not only important to the depositors of the country but also to the general business of the country as well.
Thereupon all banks of the zone will transfer to the board of control a part of their required reserves; that is, 7 per cent of their deposits and 7 per cent of their note issues will be deposited with the board of control. Later this should be increased to 10 per cent.
Let us assume that this 7 per cent of their deposits and 7 per cent of the notes issued amount to $100,000,000, which will be the central or economic reserve of the commercial zone and be under the control and management of the board of control.
You will recall that the bankers' council, which bears the same relation to the commercial zone that the Clearing House Committee bears to the financial centre of the zone, was composed of seven business men and seven bankers, who selected their own president. These fifteen men will select a representative from their respective zones. So that we shall have a board of directors representing the thirty or forty commercial zones directly and not indirectly. Each zone will be represented alternately by a business man and a banker, so that the board at Washington would always consist of fifteen or more business men and fifteen or more bankers; the business interests and banking interests equally, the inside and outside of the bank counter; the depositors and the banks or the trustees of the depositors.
The next logical and necessary step is a national central gold reserve if we hope to prevent our gold leaving us at the will of foreigners, and also if we hope to serve the whole nation, just as the Clearing House is serving its members today, and as the commercial zone will be able to serve all of its members, when it has been once organized. Therefore, as a sequel to the organization of the commercial zones, say thirty or forty of them in the United States, they in turn will all unite their gold in one great central gold reserve, which will amount to approximately $1,250,000,000 (one billion two hundred and fifty million dollars). We should then have the "American Reserve Bank." The amount of gold held by this institution would be twice that held by any other in the world, and would be under the control of a board of directors which I have just hastily described; I have used and suggest the name "American Reserve Bank," because we are known the world over as "The Americans," and, therefore, I think it peculiarly fit to use the name "American Reserve Bank."
This institution, with the specific powers granted to the individual banks as outlined, will be able not only to protect each individual bank, but to protect the reserves of all the banks; that is, the reserves of the United States against the drafts of the world, precisely as the Bank of England protects her gold, or adds to it by a rate of discount; that is, by fixing a price for the use of gold.
Mr. Manufacturer: By the way, before I forget it, I want to make one suggestion right here, because it seems to me as though this was the right place to bring it in, and that is this: I am firmly convinced that a bank like yours, and all commercial banks, should be allowed to write their acceptance across the face of notes or drafts, and so develop what is called a discount market in the United States, such as they have in other countries.
Mr. Banker: Mr. Manufacturer, I am glad that you have spoken of that matter, and here is just the place to discuss it. A great many people are deluding themselves about the matter of acceptances. It must be remembered that the banks are not going to increase their own capital by increasing their liabilities through acceptances. Indeed, this practice would only add fuel to a conflagration of their credits, unless the banks should confine themselves to accepting only such paper as had grown out of actual transactions in which the goods had been sold and delivered, or were actually in transit. Moreover, by way of assurance, every piece of such paper so accepted by a bank should state upon its face that the goods for which it was given had been sold and delivered, or were in transit.
Such acceptances are absolute agreements to pay a specific sum of money upon a specific day, and therefore are just as much a liability as a deposit subject to check, with this disadvantage, that the property is not within the control of the bank, as the deposits are, against which a check is drawn, and therefore every bank should carry precisely the same reserve against its acceptances that it carries against its deposits.