Act of 1900 may be described as the "Golden Age" of national bank organization. No other period in the history of national banking approaches it for the prolific organization of national banking institutions. The net average yearly increase for the period 1900-1913 was 294. The following tabulation, made on the same basis as that indicated in the preceding section, shows how, during this period, national banks increased still further their ability to extend their credit. Due to the new provisions that had been made for national bank currency by the Act of 1900, the volume of bank notes increased materially during the period 1900-1913. In June of the former year bank note circulation was $265,000,000, or 11.3% of the total money in the United States, whereas in the same month of the final year of the period, bank note circulation was $722,000,000, or 19.4% of the total money in the United States. The year 1913 is taken as the termination of this period in the national bank system's history, because that year marked the passage of the Federal Reserve Act which had such a farreaching influence on the entire system and which altered it in so many essential features. For many years it had been obvious to close students of finance that the nation's banking system, splendid as it was in many respects, contained many defects, and that the whole might be so altered that the individual banks could be of even greater service to their particular communities and to the country at large. During the few years just preceding the passage of the Federal Reserve Act, careful and comprehensive studies of banking in the United States were made by various competent agencies. Probably the most exhaustive of these inquiries was that followed by the National Monetary Commission, which, after the most diligent labor, presented a plan for the entire reorganization of our banking system. This plan, generally known as the Aldrich scheme, was not adopted by Congress, but the Congress which came in after the election of 1912, turned its attention forthwith to that banking plan which was ultimately embodied in the Federal Reserve Act. The National Monetary Commission, in its report, had detailed seventeen criticisms of American banking. This body of criticism provides a splendid commentary on our whole banking structure-national, state, and private-before the passage of the Federal Reserve Act; it gives, moreover, a vivid picture of the causes from which the Reserve Act arose. A summarization of the list of the Monetary Commission's criticisms follows, and is included here because it gives, in the briefest way possible, matter that is essential to the understanding of national banking. Reserves 1-There was no provision for concentrating the cash reserves of the 3-The banks lacked adequate means for replenishing their reserves Currency Bank note currency-the only form of currency which might be expected to respond by expansion and contraction to unusual needs-was deprived of elasticity because its volume largely depended upon the amount and price of United States bonds. Coöperation I-Banks lacked the means to insure such effective coöperation as was necessary to protect their own and the public's interests in times of stress. There was no coöperation of any kind among banks outside of clearing house cities; 2—The banks had no effective agency covering the entire country affording necessary facilities for making domestic exchanges. Commercial paper I-Lack of commercial paper of an established standard issued for agricultural, industrial and commercial purposes, and available for investment by banks, had led to an unhealthy congestion of loanable funds in great centers, thus hindering production throughout the country on the whole; 2-There was no open market for the discount of such paper; 3-There was a disparity in discount rates throughout the country generally, and there was in existence no agency, the influence of which could secure uniformity, steadiness and reasonableness in rates of discount. No banking facilities for emergency cases We had no effective agency that could surely provide adequate banking facilities for different regions, promptly and on reasonable terms, to meet the ordinary or unusual demands for credit or currency necessary for moving crops or for other legitimate purposes. Lack of uniformity There was no power to enforce uniform standards throughout the country with regard to capital, reserves, examinations and the character and publicity of reports of all banks in the different sections of the country. Foreign banking There were no American banking institutions maintaining branches in foreign countries, and the organization of such foreign branches was necessary for the proper development of our foreign trade. Loans on real estate The inability of national banks to legally make loans upon real estate restricted their power to serve farmers and other borrowers in rural communities. IV UNDER FEDERAL RESERVE SYSTEM It is often said, and generally conceded, that the Federal Reserve System saved the United States from financial chaos during the European War. With equal emphasis it may be said that the national banking system made the Federal Reserve System possible. The national banks (particularly in the early days of the Federal Reserve System's existence) supplied not only the skeleton for the Reserve plan, but they supplied likewise its sinews-its very life-blood. Two elements, in analysis, were necessary to make the Federal Reserve System a success: first, capital for the twelve Federal Reserve Banks; second, support and use of the facilities offered by those banks. Both of these elements the national banks supplied. The Federal Reserve Act itself provided that each national bank should be a member of the Federal Reserve System and should subscribe to the capital stock of one of the twelve Federal Reserve Banks. The alternative, in effect, was surrender of the charters of those national banks which did not see their way clear to join the System. In other words, when the government was ready to put the Federal Reserve System into effect, it found already in existence an eminently strong banking system, reaching to every point of the national compass, able to subscribe the necessary capital, lend the necessary support and coöperation, and “make the system march." The non-national banks, likewise, rendered invaluable cooperation in the launching and operation of the Federal Reserve System. Up to October, 1920, 1431 banks other than national had joined the System, indicating a ratio of 1 nonnational member bank to every 5% national members. In referring to the national banks as making possible the Federal Reserve System it is essential not to lose sight of the fact that, despite the splendid case the System has proved for itself by its own successful achievements, it was, seven years ago, untried, and looked upon questioningly by many substantial bankers and business men of the country. Had there been in existence no great body of banks, subjected to Federal legislation, it may well be doubted whether the Federal Reserve System would have had such an early and free-handed opportunity to demonstrate its merits. With the inauguration of the Federal Reserve System, national banking in America entered upon a period influenced by elements of more radical departure from established principles of finance than those of any previous epoch. New regulations have become operative; new forces in the general scheme of banking have been introduced; a closer kinship between the national and non-national banks that are members of the Sys tem has arisen. And above all, the fact that in the neighborhood of ten thousand banks are encompassed in one central banking system, working together for one purpose, has in itself had as tremendous a moral effect upon the member banks themselves as upon the country at large. During the period 1914-1920, the average yearly increase in the number of national banks organized was 83, but total assets of all national banks increased from 11.5 billion dollars to 22.2 billion, or nearly 100 per cent. In other words, the increase in total resources shown during the period mentioned practically equaled the growth of assets during the entire 51 years that the national banking system had been in existence up to 1914. Individual deposits in national banks more than doubled during the period, and loans increased over 90 per cent. These two items per $1 of capital, at the beginning and close of the period were: It must, of course, be borne in mind that these unprecedented advances have been by no means due solely to the fact that the Federal Reserve System was in operation, but have been due likewise to other important financial and economic forces— chiefly stimulated by the war-which were concurrent with the development of the Federal Reserve System. In 1920 there were 8093 national banks in operation, out of a total of some 31,000 banks in the entire country. The capitalization of the national banks was 1224 millions, as compared with 1478 millions for all other banks (June 30, 1920); their total deposits 17,155 millions, as compared with 24,558 millions for other institutions. The table on page 23 will show at a glance the development by periods, of certain important features of the national banking system since its inauguration nearly 60 years ago. In reading these figures, as well as those set forth on the preceding pages, it is well to remember that reliable statistics for all |