ld have a larger return of the earnings of the Federal ks, has it not? SON. I do not think the members would be in disagreeat subject, Mr. Chairman. IRMAN. Well, the Federal reserve banks themselves, many ad Federal reserve bankers, have come to regard that sort vorably, have they not? SON. I do not know. AIRMAN. I will say to you that at the last annual meeting ton bank, prior to the death of Governor Harding, the passed a resolution favoring an agreement to permit the nks to share in the earnings of the Federal reserve banks. ittee, at a former session of Congress, reported a bill that ed, the purpose of which was to pay earnings to member ing member banks profits made by reason of operation of l reserve bank with member banks, and only paying into ry such earnings as had accrued through Government The bill before us now provides that member banks ve one-half of the net earnings of the Federal reserve ch, of course, contemplates, first, the payment of the 6 per 1 to member banks, and the accumulation of 10 per cent d to the surplus fund of Federal reserve banks; and the rovides that the other one-half of the earnings of the serve banks shall be paid into the guarantee fund, which empts to provide for. How do you view these provisions RSON. I believe, Mr. Chairman, if the member banks had otection under the Federal reserve system, and a maxiof interest to be paid on time deposits fixed at a reason, to hold down improper competition in banks, and that ould provide for the payment of no interest on demand bject to check, that their earnings would be such that they willing to forego any participation in the remainder of gs as proposed in your bill, but would be perfectly willing em to be set up in the guaranty fund. AIRMAN. The entire earnings? RSON. Yes. AIRMAN. You think that would really be a better plan vide the net earnings between the member banks and the fund? RSON. I think until we have had some experience in the fund, at least, we should make the guaranty fund as large e; and I believe the banks would be willing, in view of provisions which would permit them to make more earnmore or less uniform system of banking and remove immpetition-they would be willing for all the net earnings p in the guaranty fund. LAIRMAN. Mr. Fierson, are you familiar with the history ion and the practices that have developed with reference arance of checks, and the termination of the practice of er banks in making charges for remitting checks? RSON. Well, Mr. Chairman, that has been discussed, been liscussion among country bankers for many, many years. one time a substantial part of their revenue, until the Mr. FIERSON. Many communities have no banking accommolations now. Mr. STEVENSON. And the people are afraid, still, to organize new ones, viewing the experiences of the past. Mr. FIERSON. That is one of the principal reasons, I think; they do not want to stand the chance of double liability. They have ha a noble experience along that line. The CHAIRMAN, This is also true, is it not, Mr. Fierson, that practical operation a great many stockholders who might be r quired to pay find themselves able to get the drift of things an then prepare for the day of reckoning, so that when the time com nothing can be made out of them; and the man who is consciention. and who feels honorably bound to respond to that obligation in go faith, the man who invests to aid his community, is about the on one who is made to pay? Mr. FIERSON. Well, of course, I can see the trend of your though: but I am not qualified to answer that question. As I understar the national banking act, after failure of a bank a stockholder w transfers his stock within six months The CHAIRMAN. Sixty days. Mr. FIERSON. Yes; 60 days next prior to the insolvency of t bank, he is liable. But now, whether his responsibility is such th it can be collected, I do not know; but I do believe it would be ve beneficial to remove the double liability. The CHAIRMAN. Well, it has proven a failure, as far as protect!: the public is concerned. Mr. FIERSON. I think it has. The CHAIRMAN. Mr. Fierson, what do you think of the pres machinery of the Federal reserve system, with reference to the ear ings of Federal reserve banks, and with reference to the returns th are paid by Federal reserve banks to member banks? Mr. FIERSON. Well, the returns to the member banks, in the li of the amount of money that the banks have in the Federal reserva is negligible. They are now returning 6 per cent dividends on th stock investment; the member banks are receiving that, I mean. The CHAIRMAN. That is all they receive, is it not? Mr. FIERSON. That is all they can receive, under the law; but t big end of it is their reserve requirement, on which there is no reve! to them whatever, and the present statute provides for a reserv in our particular district-it depends on the locality of the bat.k 3 per cent on time deposits and 7 per cent on demand deposits, that runs into a huge sum of money that must be maintained da with the Federal reserve bank, and on which the member recei no interest or earnings whatever. The CHAIRMAN. And, of course, the Federal reserve banks are quired to subscribe this stock, which is 6 per cent of the capitalMr. FIERSON. The member banks, you mean? The CHAIRMAN. Yes; and carry the reserve as suggested by you Mr. FIERSON. That is the law. The CHAIRMAN, And the only return they get is the arbitrary! of 6 per cent on their capital. Mr. FIFRSON. That is all. The CHAIRMAN. It has become pretty generally accepted am bankers, in recent years, as a sound contention, that the men. ld have a larger return of the earnings of the Federal ks, has it not? RSON. I do not think the members would be in disagreemat subject, Mr. Chairman. IRMAN. Well, the Federal reserve banks themselves, many nd Federal reserve bankers, have come to regard that sort vorably, have they not? SON. I do not know. AIRMAN. I will say to you that at the last annual meeting ston bank, prior to the death of Governor Harding, the passed a resolution favoring an agreement to permit the nks to share in the earnings of the Federal reserve banks. ittee, at a former session of Congress, reported a bill that ed, the purpose of which was to pay earnings to member ing member banks profits made by reason of operation of l reserve bank with member banks, and only paying into ry such earnings as had accrued through Government The bill before us now provides that member banks ve one-half of the net earnings of the Federal reserve ch, of course, contemplates, first, the payment of the 6 per a to member banks, and the accumulation of 10 per cent ed to the surplus fund of Federal reserve banks; and the rovides that the other one-half of the earnings of the serve banks shall be paid into the guarantee fund, which empts to provide for. How do you view these provisions ? RSON. I believe, Mr. Chairman, if the member banks had otection under the Federal reserve system, and a maxiof interest to be paid on time deposits fixed at a reason, to hold down improper competition in banks, and that ould provide for the payment of no interest on demand bject to check, that their earnings would be such that they willing to forego any participation in the remainder of gs as proposed in your bill, but would be perfectly willing em to be set up in the guaranty fund. AIRMAN. The entire earnings? RSON. Yes. AIRMAN. You think that would really be a better plan vide the net earnings between the member banks and the fund? RSON. I think until we have had some experience in the fund, at least, we should make the guaranty fund as large e; and I believe the banks would be willing, in view of provisions which would permit them to make more earnmore or less uniform system of banking and remove immpetition-they would be willing for all the net earnings p in the guaranty fund. LAIRMAN, Mr. Fierson, are you familiar with the history ion and the practices that have developed with reference arance of checks, and the termination of the practice of er banks in making charges for remitting checks? ERSON. Well, Mr. Chairman, that has been discussed, been liscussion among country bankers for many, many years. one time a substantial part of their revenue, until the passage of the Federal reserve act. I think, no doubt, if we couli bring all of the banks of deposits under one system and could lo away with the exchange entirely, and collect everything at par. that it would be an admirable situation; but until that is done, to deprive member banks of returns in the way of exchange on their remittances is depriving them of substantial income, which they should be entitled to. That has been carried to such extremes that, in many cases, when a nonmember bank, for instance, would decline to join the system and remit at par, I have heard of instanos where checks were forwarded by the Federal reserve bank to the postmaster of that town, and he would take them and present them over the counter, so to speak, and demand payment. The CHAIRMAN. In some instances, they were sent to the express agents. Mr. FIERSON. I think so. The CHAIRMAN. Now, Mr. Fierson, being divested of the right to charge for service for remitting check--had a tendency to kep State banks from joining the Federal reserve system, did it not? Mr. FIERSON. Unquestionably. The CHAIRMAN. And did it not keep a great many banks out! The CHAIRMAN. Well, Mr. Fierson, when you estimate the loss to member banks as the result of denying them the privilege of charg ing for remitting checks, and the loss of the returns on deposits carried with the Federal reserve banks, that would cover a considerable sum, during the period that has followed the enactment of the Federal reserve law, would it not? Mr. FIERSON. Mr. Chairman, I have made no compilation of figures on that, but it is my judgment that it would amount to a substantial dividend to the member banks, if they were able to realize on that feature. The CHAIRMAN. So that a substantial dividend over the years since the enactment of the Federal reserve law, down to this time, would be an amount equal to the capital of the banks, would it not! Mr. FIERSON. I should not be surprised. The CHAIRMAN. I will say to you that I have seen it estimated that it would make a difference of something like 6 per cent an nually. That has been estimated by the bankers. I do not know, myself, what the figure would show. It certainly would have made a considerable sum of money. Mr. FIERSON. There is no question about that. The CHAIRMAN. It would have made enough difference in the accounts of the average small bank to have saved the lives of many of them, would it not? M FIERSON. I expect it would. Th CHAIRMAN. Not only is that true of the member banks carry ing reserves with the Federal reserve bank required by law, and upon which they get no return; but prior to the passage of the Federal reserve law the same banks carried balances with city banks, upon which they did receive interest charges, did they not! Mr. FIERSON. That is true; and was the cause of much opposition, as I recall it, to the Federal reserve act, the fact that they were deprived of such earnings AIRMAN. That brings us to a consideration of the guarisions of the bill before us. ve stated your views, in a general way, with reference dom or advisability of undertaking to establish a guar. Are you familiar with the record of losses to depositors passage of the national banking act, the first national Et in 1865? RSON. I believe, Mr. Chairman, that I have some figures on I have here Comptroller Pole's testimony before the mmittee on Banking and Currency, in which he stated were 815 national banks which had been liquidated since the general creditor has been paid 70 per cent, and if the and secured claims are included, the average is 79 per es that answer your question? AIRMAN. It answers it in percentages, but it does not give in dollars and cents, of the total losses. RSON. I am sorry I have not that information. However, made by Congressman Shallenberger, which I have read, he figures that show that during 67 years, 1,241 national e placed in receivership, and that the deposits of those se closed banks, aggregated $261,205,000; that the sum of 63 has been paid to creditors on proved claims against s; leaving a total loss to depositors in the failed national 7 years of $67,092,702. AIRMAN. Well, I will say, in that connection, that the er stated to this committee that the losses to depositors 1 banks since the foundation of the national banking systo 1930, amounted to around $82,000,000. ALLENBERGER. Those are the figures he gave. I think I ear 1929, and he had probably 1930. AIRMAN. Of course, we have not the accurate figures as ses to the depositors during these two years because the has not been completed. RSON. I have atttempted to get those figures, Mr. Chairman. AIRMAN. The total deposits of banks that failed, member failed, during 1930, amounted to, in round figures, $700, ALLENBERGER. Mr. Chairman, could I put in there the figure vant? AIRMAN. Yes. ALLENBERGER. It is an interesting fact that the comptroller me that, prior to 1929, the total average payment to deas 70 per cent, but in the last two years, as far as they in the liquidation and have that figured out, the average en 50.5 per cent. AIRMAN. That is only an estimate. ALLENBERGER. Well, he was giving the percentage paid to ors of the national banks fully liquidated. This is the are that he gave me. Of course, we do not know whether eventually change. AIRMAN. I was coming to that. ALLENBERGER. That will mean it is greater now. |