the work, and we have therefore excluded the Secretary of Agriculture and the Comptroller of the Currency, the duties of whose offices already absorb all their time.

We have extended the limit of commercial paper which may be discounted by Federal reserve banks from three months to six months, because we have found that thousands of banks in the West and in the South necessarily take six months' paper because of the longer time required for agricultural processes than for the manufacturing and mercantile processes of the East. We have, however, provided that of the discounted paper of any bank not more than 50 per centum of it shall be for the long-time period, and we have sought to further limit this by providing that in no case can any bank have over $200,000 of paper discounted exceeding a maturity of 90 days. We have recommended an amendment by which every member bank is given, as a matter of right, the privilege of discount at its reserve bank to the amount of its capital stock at the lowest current rate of interest, providing it presents eligible paper. This is done to prevent discrimination against a bank and to make every bank feel certain that it will receive the benefits of the system. On the other hand, we have also recommended that a Federal reserve bank shall not discount the paper of any member bank to a greater extent than twice its capital stock. This is to prevent favoritism and undue expansion. We design, also, to place a check upon undue expansion of bank credits by providing that when a bank is allowed to discount paper to a greater amount than its capital stock it shall pay a higher rate of discount.

We have raised the reserve against notes in Federal reserve banks from 33 to 45 per cent because the experience of the great countries of the world and because our own experience with greenbacks has indicated that this limit is the safe one. We have provided, however, that in case of emergency the reserve board may authorize a reserve bank to fall below its limit of 45 per cent when it is necessary to give relief to member banks, but in such case it shall pay a tax for each 23 per cent of deficiency. We have provided that the reserve against notes must be gold or gold certificates, and we have therefore recommended that the words "or lawful money in the House bill be stricken out. We feel that no argument upon this is necessary, as it is obviously unsafe to provide that one Government obligation may be redeemed by another Government obligation.

We have recommended that the reserve against deposits in reserve banks be raised from 33 per centum to 35 per centum, but that the reserve board may permit a bank in emergency to run its reserve down to 25 per centum, paying, however, a tax for each deficiency of 2 per centum. This is thought to be desirable so as to make the reserve less rigid.

We think it would be undesirable to permit the Federal reserve board to have discretionary power in issuing currency to a Federal reserve bank which in all respects complies with the provisions of this act. We therefore recommend that the Federal reserve board shall issue reserve notes to any reserve bank which complies with the requirements as to gold reserve, as to the deposit of security, and conforms to the other provisions of this act. This is a necessary change because if we give the member banks the right to secure discounts of the Federal reserve bank it is necessary for the Federal

reserve bank to count on getting currency to meet the needs of business, provided, of course, the reserve bank can comply with the requirements as to gold reserve and security. By placing a limit to the amount of discounts that can be made by a reserve bank to any member bank we have placed a limit on excess. It should be noted also that the Federal reserve board has the power to check excessive loans and discounts by requiring reserve banks to raise their discount rates at any time.

We have recommended a change in the section relating to the handling of individual checks by reserve banks under which banks collecting checks will still be permitted to make reasonable charges under regulations provided by the Federal reserve board. We have recommended changes in the refunding provisions of the bill, so that the reserve banks may utilize about $50,000,000 a year of their funds. for the purchase of 2 per centum Government bonds at par with interest. This will afford employment for funds which may otherwise be idle in the reserve banks; it will make a market for 2 per centum bonds at par and thus preserve the Government credit, and it will enable the retirement of that national-bank currency which national banks for any reason may desire to retire. We have then recommended that the 2 per centum bonds so acquired by the Federal reserve banks may be presented at the Treasury and exchanged for 3 per centum one-year gold Treasury notes. Ordinarily these notes will be retained in the reserve banks and held as an investment. While the Government will be paying 1 per centum more interest than it pays on 2 per centum bonds it will also be receiving the surplus profits from the operations of the bank which will be an offset. These 3 per centum one-year gold Treasury notes will be an investment in ordinary times, but they will also afford a means to the reserve banks by which they can be useful in protecting the gold supply of this country. When gold exports are threatened or when a larger supply of gold is desired in this country, the reserve banks can sell these notes at home or abroad and bring the proceeds to the United States in gold, so as to maintain gold reserves. While the notes are one-year notes they are only such for the purpose of making them marketable, and the reserve banks will be under contract with the Treasury to renew them year by year for 20 years if desired. We have sought to mitigate the severity of the shock that might result from the rapid transfer of reserve when this bill is placed in operation by providing that the transfer shall be gradual over a period of 30 months.

We have also felt justified in reducing the reserve which city banks are required to keep to 15 per centum, and in the case of country banks, while the reserve remains at 12 per centum, we have provided that only 4 per centum of this need be in Federal reserve banks, for the reason that country banks in the immediate future are likely to use the facilities of reserve banks to a less extent than the city banks. We recommend that national banks located outside of central reserve cities be permitted to use a portion of their time deposits for making five-year farm mortgages. This is done because the making of a farm mortgage for one year is an impracticable and useless privilege and because in practice it has been found entirely safe for banks in agricultural neighborhoods to invest a part of their time loans in this way.

We have recommended that the savings-bank provision be stricken from the bill, as it disrupts a practice now in safe and successful operation.

We have recommended that the Aldrich-Vreeland Act be extended for one year, so that it shall expire in June, 1915. This we have done so as to bridge over the period of organization which will be required to establish this new system.

Respectfully submitted.

GILBERT M. HITCHCOCK.

KNUTE NELSON.

JOSEPH L. BRISTOW.

COE I. CRAWFORD.

GEO. P. McLEAN.

JOHN W. WEEKS.

The bill, if amended as suggested by our proposed amendment, will read as follows:

H. R. 7837.

AN ACT To provide for the establishment of Federal reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the short title of this act shall be the " Federal reserve act."

The terms "national bank" and "national banking association" used in this act shall be held to be synonymous and interchangeable. The term "member bank" shall be held to mean any national bank, State bank, or trust company which has become a member of one of the reserve banks created by this act. The term "board" shall be held to mean Federal reserve board; the term "district" shall be held to mean Federal reserve district; the term "reserve bank" shall be held to mean Federal reserve bank.

FEDERAL RESERVE DISTRICTS.

SEC. 2. That the Federal reserve board, hereinafter provided for, shall, as soon as practicable after their appointment and confirmation, designate from among the reserve and central reserve cities now established a number of such cities to be termed Federal reserve cities, and shall divide the continental United States into districts, each district to embrace one of such Federal reserve cities: Provided, That the districts shall be formed with due regard to the convenience and customary course of financial and commercial business in each district, and need not necessarily coincide with State or county boundaries. The districts thus established shall be known as Federal reserve districts, and each of them shall be designated by the name of the Federal reserve city located therein. The Federal reserve board shall, as soon as practicable after the said districts have been established, proceed to organize, conformable to the provisions of this act, in each Federal reserve city designated as aforesaid, a Federal reserve bank, which shall be known by the name of the city in which

it is established, as, for example, “Federal reserve bank of Chicago." Four Federal reserve cities, and appurtenant to them four Federal reserve districts, and no more, shall in the first instance be designated and established as such by the Federal reserve board: Provided, That after Federal reserve banks have been organized and in operation for a period of two years in said four Federal reserve cities, the Federal reserve board may, in its discretion, from time to time, designate not to exceed in all eight additional Federal reserve cities, with the requisite Federal reserve districts appurtenant thereto, and for that purpose may alter and change the limits and areas of existing Federal reserve districts. There shall be allotted to every national bank within a Federal reserve district, of the capital stock of the Federal reserve bank of such district, a sum equal to six per centum of the fully paid-up capital stock and surplus of such national bank, which stock so allotted shall be underwritten by said bank and for a period of sixty days after allotment be offered for subscription at par to the public at large, but no more than one hundred shares shall be allowed to be subscribed for or held by any person, firm, or corporation, and all of the allotted stock not subscribed for and taken by the public shall immediately be subscribed for and taken by the national bank to which the same was in the first instance allotted. The preparation, allotment, subscription to, and sale of stock shall be under the control of the board, which in case of oversubscription shall give preference to the sinaller subscriptions. The national banks shall in the first instance act as agents of the Federal reserve board to take subscriptions from the general public and receive payment therefor which shall be held subject to the order of the board. That said stock subscription shall be paid for in gold coin or geld certificates as follows: One-third at the time of subscription, one-third within thirty days, and one-third within sixty days thereafter. The board is hereby empowered to appoint such assistants, to subpoena, swear, and examine witnesses, to employ counsel and experts, and to incur such expenses as may be necessary for establishing, organizing, and putting in operation the Federal reserve banks and designating the Federal reserve cities and reserve districts provided for in this act, and such expenses shall be paid by the Treasurer of the United States upon vouchers approved by the Secretary of the Treasury, and the sum of $100,000, or so much thereof as may be necessary, is hereby appropriated, out of any money in the Treasury not otherwise appropriated, for the payment of such expenses. Five members of the reserve board shall constitute a quorum with power to do business.

STOCK ISSUES.

SEC. 3. The capital stock of each Federal reserve bank shall be divided into shares of $100 each, and shall be without voting power. The Federal reserve board shall have power to prescribe regulations for the transfer of said stock. With the consent and approval of the board, reserve banks may establish such branch offices, within their respective districts, as they deem necessary to conform to the convenience and established course of business.

FEDERAL RESERVE BANKS.

SEC. 4. When the Federal reserve board has established Federal reserve districts, as prescribed in section two of this act, the governor or vice governor of such board shall, under his hand and seal, execute a certificate designating the territorial limits of such districts and the Federal reserve city in each district, and shall file such certificate with the Secretary of the Treasury. When such certificate has been executed and filed, as aforesaid, the board shall allot to each and every national bank stock in the reserve banks as prescribed in section two of this act, and when, conformable to section two of this act, an amount of such stock has been subscribed for in any Federal reserve district equal to $6,000,000, and one-third of such subscription has been paid in, the board shall, by its governor or vice governor, under his hand and seal, issue a certificate in writing specifying the name and location of the reserve bank in such district, the territorial limits of the district, the amount of the capital stock subscribed, and the amount paid in on such subscription, and the name and amount of stock taken by each subscriber. Such certificate shall be acknowledged before the clerk of a court of record, or a notary public, and shall be filed with the Secretary of the Treasury. Upon the filing of such certificate with the Secretary of the Treasury as aforesaid, the said reserve bank so formed shall become a body corporate and as such, and in the name designated in such organization certificate, shall have power

First. To adopt and use a corporate seal.

Second. To have succession for a period of twenty years from its organization unless it is sooner dissolved by an act of Congress, or unless its franchise becomes forfeited by some violation of law. Third. To make contracts.

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

Fifth. To appoint by its board of directors, elected as hereinafter provided, such officers as are not otherwise provided for in this act, to define their duties, require bonds of them and fix the penalty thereof, to dismiss such officers or any of them as may be appointed by them at pleasure, and to appoint others to fill their places.

Sixth. To prescribe by its.board of directors by-laws not inconsistent with law regulating the manner in which its general business may be conducted and the privileges granted to it by law may be exercised and enjoyed.

Seventh. To exercise by its beard of directors, or duly authorized officers or agents, all powers specifically granted by the provisions of this act and such incidental powers as shall be necessary to carry on the business of banking within the limitations prescribed by this act.

No Federal reserve bank shall transact any banking business, except such as pertains to the perfection of its organization and management, until two-thirds of its stock subscribed for has been paid in as prescribed in section two of this act.

Every Federal reserve bank shall be conducted, managed, and controlled by a board of nine directors, five of whom shall be appointed by the Federal reserve board, and shall be known as directors "A," and four of whom shall be known as directors" B." and who shall be selected and appointed by the member banks as follows: