BANKS AND BANKING 580 



years, the government needed a unified and 

 absolutely safe system, one that would operate 

 in every part of the country. After much dis- 

 cussion a new law was drafted and passed in 

 February. 1863. This law was faulty in a few 

 minor respects, and was replaced by one of 

 June 3, 1864. 



The new system provided for the establish- 

 ment of national banks, and these were placed 

 under the supervision of an officer in the 

 Treasury Department, the Comptroller of the 

 Currency. Each national bank was allowed 

 to issue notes on the basis of bonds purchased 

 by it from the government. At least thirty 

 per cent of a bank's capital was to be invested 

 in United States bonds, which were then to be 

 deposited with the Treasurer of the United 

 States, and the bank was allowed to issue notes 

 up to ninety per cent of the par value of the 

 bonds. These notes were made legal tender 

 for all debts except customs duties. The mini- 

 mum capital for a national bank in a city of 

 more than 6,000 people was fixed at $100,000; 

 the minimum in smaller communities was fixed 

 at $50,000. The currency law of 1900 contained 

 an amendment which fixed $25,000 as the mini- 

 mum capital for a bank in a town of less than 

 3,000. 



The system as adopted included a number 

 of notable improvements over the old con- 

 fusion. In the first place, the bank notes were 

 printed under the direction of the government. 

 They were uniform in design, and as the banks 

 were required to keep adequate reserves, they 

 were uniform in value throughout the country. 

 The note of a Chicago bank was then worth 

 as much in New York as in New Orleans. 

 The holders of these notes were protected by 

 the bonds which formed the basis for the note 

 issue. The depositors in national banks were 

 given good security for their money, for the 

 law made the stockholders liable for the bank's 

 debts to double the amount of their holdings 

 of stock. More important still, national banks 

 are required to keep their accounts in* a uni- 

 form manner and must submit them on demand 

 to inspection by government examiners. 



The state banks were slow to see the ad- 

 vantages of the new system, and at the begin- 

 ning of 1865 there were only 638 national banks. 

 It seemed as if one of the primary objects of 

 the law, to secure a market for government 

 bonds, had failed. To hasten the reorganiza- 

 tion of state banks, Congress passed a law 

 placing a tax of ten per cent on their note 

 circulation. By the time this tax went into 



BANKS AND BANKING 



effect, on July 1, 1866, 1,000 more banks had 

 received national charters. The number of 

 national banks increased gradually, until in 

 1900 it was about 3,600. Largely because the 

 act of 1900 reduced the minimum capital from 

 $50,000 to $25,000, the number of banks in- 

 creased to 7,045 in 1910 and to 7,500 in 1915. 



Banking Reform. The inflexibility of the 

 national banking system was plainly evident in 

 1903 and during the financial panic of 1907. 

 In the latter year the Aldrich-Vreeland Bill, 

 providing for the issuance of emergency cur- 

 rency, was passed, but no 'bank ever cared to 

 take advantage of the law lest such action be 

 regarded as evidence of extreme weakness. 

 The need for new monetary legislation became 

 more and more evident, and in 1910 the Senate 

 of the United States appointed a National 

 Monetary Commission, under the chairmanship 

 of Senator Nelson W. Aldrich, to investigate 

 the whole question of banking reform. The 

 Aldrich plan, as proposed in a report issued in 

 1911, called for a National Reserve Association, 

 which was practically a central bank. 



It was soon evident, however, that the report 

 of the Commission would carry no weight, and 

 that the public was fearful of a central bank. 

 Accordingly the National Citizens' League was 

 organized to create a public sentiment in favor 

 of some banking system, and this organization 

 put out a platform which, for three years, was 

 pressed home to the public by publicity meth- 

 ods and by addresses, until the country was 

 ready, in 1911, to support Congress in the 

 framing of a new monetary measure. The 

 work of the National Citizens' League ran for 

 a period of about three years and cost between 

 $500,000 and $600,000, but it was so effective 

 that when the Banking and Currency Commit- 

 tee of the House took up the question of form- 

 ing a banking bill they had the country behind 

 them with an almost unanimous insistence that 

 the work be speedily done. The system created 

 by the law of 1913, the present Federal Reserve 

 system, differs from the plan of the Aldrich 

 Commission chiefly in that the function of 

 issue lies with the Federal Reserve Board, and 

 the concentration is in twelve centers instead 

 of one. A feature of the Aldrich plan, which 

 did survive, was a provision for district asso- 

 ciations and for branches of the district asso- 

 ciations. These latter have never been put 

 into operation. 



Federal Reserve Banks. The locations of 

 the twelve Federal Reserve Banks created by 

 the act of 1913, and the districts which they 



