at least $80,000,000. In one year these same vessels could have earned fifty to one hundred million dollars of net revenue, while at the same time carrying American products for the farmer, the manufacturer, and the business man at one-third of the existing extortionate ocean freight rates.

When the historian of the future studies this period, he will say that the failure of the United States Government in the fall of 1914 to buy merchant vessels for the protection of American commerce was one of the monumental and inexplicable blunders of the time.

The necessity for the creation of an American merchant marine for the regulation of ocean freight rates and for the establishment of a shipping board is just as imperative now as it was then. A Democratic House has passed such a bill, carrying with it an appropriation of $50,000,000 for the construction and purchase by the Government of a merchant marine, to be utilized both as an essential naval auxiliary in time of war and for the uses of our commerce in time of peace. If we are going to have any genuine preparedness, about which there is so much talk and in which our Republican friends profess such an interest, how can they justify their vote against this measure, which is just as essential to a strong and effective Navy as the guns on the decks of our battleships or the coal in the bunkers of our war vessels? And yet most of the Republicans voted against this essential measure when it was passed recently in the House of Representatives.

I believe this bill will soon pass the Senate of the United States and receive the approval of the President. When this happens, another great constructive measure for the prosperity and prestige of our beloved country, second only in importance to that of the Federal reserve act itself, will have been secured for the American people. The Stars and Stripes will again be seen upon the high seas. The safety of our commerce will no longer be jeopardized by reliance upon foreign flags. The lives of American citizens who must travel upon the high seas will no longer be endangered on ships of belligerent flags because there are no American ships to protect them; and the efficiency of our Navy will no longer be imperiled for want of the necessary naval auxiliaries to supply our fighting units with the coal and provisions and ammunition which can not be supplied to them in case of war except through an efficient auxiliary merchant marine.

THE FLAG.

The flag of our country, whether we wish it or not, has a meaning beyond our own territorial limits. By the decree of God and by destiny we have been thrust into a position of power, carrying with it world-wide responsibilities and forcing upon us in all probability a measure at least of world dominance. That flag must never stand for a failure to meet any domestic or international responsibility; that flag must forever continue to represent the true spirit and courage and genius and ideals of the American people, and, above all, it must stand for truth and justice and fair dealing with all the world. It must stand for peace-peace which reflects the Heaven-given light of truth and justice; a peace we shall never be willing to disturb except in a cause whose shield is truth and honor-emblazoned by a light of such radiance and purity that every American citizen will be eager for the glorious privilege of shedding his blood in defense of it.

O

THE BANQUET GIVEN BY THE JEFFERSON COUNTY NATIONAL BANK OF WATERTOWN, N. Y.

ON APRIL 17, 1916

By

PIERRE JAY

CHAIRMAN, BOARD OF DIRECTORS, FEDERAL RESERVE
BANK OF NEW YORK

PRESENTED BY MR. SHEPPARD
JUNE 29, 1916.-Ordered to be printed

WASHINGTON

GOVERNMENT PRINTING OFFICE

THE COUNTRY BANKER AND THE FEDERAL RESERVE SYSTEM.

By PIERRE JAY, Chairman Board of Directors Federal Reserve Bank of New York.

What facilities and advantages does the Federal Reserve System offer to its country-bank members, and in what ways do they feel that its operations restrict or adversely affect them.

THE PRINCIPAL ADVANTAGES.

Let us begin with the facilities and advantages:

1. Insurance against currency panics: It is an insurance, complete and effective, so far as we can see, against currency panics. The supply of Federal reserve notes carried on hand at all times by the Federal Reserve System is far in excess of the amount of AldrichVreeland notes which were used, and the machinery for their issue is in daily operation.

2. Rediscounting: It provides a place where the normal, everyday paper of the country bank may be rediscounted and the proceeds withdrawn either by check or in currency. The country banker at first feared that rediscounting would be accompanied by much formality and red tape; that his paper would not be eligible for rediscount; that his notes were too small to offer to the reserve bank. None of these apprehensions is warranted. I wish I could show you the list of notes under $100, with some running as low as $20, which we have already put through for our member banks. No note is too small to rediscount at the Federal reserve bank; the reports show that a larger percentage of country-bank paper than of citybank paper is deemed eligible for rediscount; and the only formality or red tape which we impose in rediscounting is to ask that paper shall not contain irregularities, and that we shall be advised whether not you have statements of the borrowers on file. More banks rediscounted with us in March than in any previous month. As I have said, you may rediscount with your Federal reserve bank as a statutory right, not by special arrangement or perhaps favor, as at your present reserve agents'; nor is there any limit to the amount you may borrow of a Federal reserve bank, except the reSources of the latter and the exercise of usual banking prudence on the part of its officers.

3. Reserves reduced. The Federal reserve act reduced your reserves on demand deposits from 15 per cent to 12 per cent, on time

deposits from 15 per cent to 5 per cent. Many banks feel that with the reserve system in existence they can safely run closer to their legal reserves than heretofore. An amendment proposed to Congress by the Federal Reserve Board will permit a member bank, for short periods, to borrow on its own note secured by eligible paper, instead of actually rediscounting the paper itself. Such a note, though running only a few days, perhaps to cover a sudden demand or depletion of reserves, might have as collateral paper maturing in two or three months; and the amendment, if enacted, would obviate the just criticism of the country banker that he often does not have paper covering the exact period for which he wishes to borrow.

4. Loans on mortgages.-The Federal reserve act permits country banks to loan a certain percentage of their capital or time deposits on farm mortgages. An amendment proposed to Congress by the Federal Reserve Board seeks to broaden such real estate collateral to include city, town, and village property, thereby putting the national banks on substantially the same basis, in this respect, as the State institutions.

5. Fiduciary powers.-The act provides that permits may be issued to national banks, when not in contravention of State law, to act as trustee, executor, and administrator of estates and as registrar of stocks and bonds, in the same manner in which trust companies now act. As our counsel believes that, except with respect to acting as registrar, the exercise of fiduciary powers is not sanctioned by the law of this State, no general fiduciary permits have been or will be issued in New York State unless its laws are amended, but a number have been issued to banks in New Jersey; they have also been issued to banks in many States outside this district.

6. Power to accept drafts.-The act empowers member banks to accept drafts drawn upon them growing out of the importation or exportation of goods, and the Federal Reserve Board has proposed to Congress that the privilege should be extended to domestic transactions as well. While the present power may prove of little advantage to the country bank, the power to accept for domestic transactions, if granted, may prove of considerable value.

7. Purchase of Government bonds.-The act provides that the reserve banks, during a period of 30 years, shall purchase from the national banks their Government bonds. The operation has begun, a substantial volume of bonds has been bought, and United States twos, which 18 months ago stood at 97, are now at par.

8. Carrying bonds to use as collateral for loans now unnecessary. As the country bank, through its reserve bank, may at any time convert into cash the notes of the farmers, merchants, and manufacturers, who are its depositors, it need no longer carry bonds of various kinds to use as collateral in borrowing from its city correspondent.

9. Fiscal agency of the Government. The exercise by the reserve system of its function as fiscal agent of the United States commenced on January 1. A large volume of the current bank deposits of the Government is now carried in the reserve banks and a beginning has been made of the close fiscal relations which should exist between the Government and the reserve system, adding greatly to its strength and to its power to accommodate its member banks.