clearing houses will be generally organized by the banks for the collection of non-member checks and you have a system for making settlement between banks that will reduce the enormous amount of bookkeeping work now necessary, at least 100 per cent.

With every check in circulation properly numbered under the Universal Numerical System, just as all English checks are marked for clearing, there would be possible a machine system of bookkeeping and accounting that would reduce the cost of collection to an absolute minimum. It is to be hoped that the check collection functions of the new bill will be put in capable and experienced hands for a complete and final solution of the vexed problem of the transit check.

T

THE AGITATION AGAINST INTERLOCKING DIRECTORATES-THEORY VERSUS PRACTICE HE announced intention of Messrs. J..P. Morgan & Co. to retire from a large number of important directorates is a matter of first rate importance. It was given out by Mr. J. P. Morgan himself, upon the first business day of the new year, and his brief statement was strictly to the point. It gave two reasons for the new policy of withdrawal-one to serve the convenience of the partners who had been greatly burdened by attendance at many board meetings; and the other a readiness to retire because "an apparent change in public sentiment" warranted such a course.

This striking and unexpected action on the part of Messrs. Morgan met with prompt and general approval. Such was the sentiment expressed-with some exceptions-in the financial district, and editorial comments which have been coming in show that the move is a popular one all over the country. The general feeling seems to be that this attitude, taken by the leading private banking house of the country, is an important and helpful step toward solving the so-called interlocking directorate problem. We have no doubt that the action will prove to be constructive and wise, as showing President Wilson and Congress that leading business men can be relied upon to co-operate and to comply with public opinion.

But there remains the important question whether on this subject public opinion has been well-informed. The public has been led to believe by certain theoretical zealots, and by the muck-rakers, that directors of the leading transportation and industrial corporations of the country have been profiting illegitimately through their "interlocking" connections. But they have never given any specific instances of such profits. To be sure, Mr. Brandeis, in his recent series of articles in "Harper's Weekly," describes how Mr. Morgan, as a director of the Steel Corporation, sells to himself as a director of a railroad; but even he hasn't learned how this theory works out. For instance there is no railroad in which the late Mr. Morgan was supposed to be more influential than the New Haven. And yet it appears that the New Haven has never bought a ton of steel rails from the Steel Corporation. How about this, Mr. Morgan? As a director of the Steel Corporation, bound to advance the interests, were you fast asleep to this opportunity? Behold the answer: The New Haven could buy its rails cheaper elsewhere!

This is a single instance where the interlocking theory breaks down badly, but it is enough. And it is one of the facts that lead us to doubt whether the

public, which demands these hardworking directors to retire, is sufficiently well informed. Who is to take their places? Suppose, as is probable and (public opinion says) proper, the Morgan action is to be followed by many other groups of well known financiers only less eminent than the Morgans, who then are to keep strict watch upon the financial policies of these properties? Who is to put the brakes upon the technical men who are always keen to spend endless sums for improvements, upon the salesmen who want to sell goods whether at a profit or not? Hitherto the financial directors have been sitting on the safety valves of such corporations. They have sometimes made mistakes, but in general they have been the ones to study world-wide conditions of labor, money and credit, to tell the manufacturers when to shorten sail for an approaching storm. How many millions of dollars have they saved for investors by their conservatism, by their financial skill and resource in the time of actual storm?

If they retire generally from these corporate directorships, may we still "lie down" on them for counsel and aid? We hope so. We believe so. But whether they will have the same heavy sense of responsibility which they have had while their names and the reputations of their firms have been actually and publicly tied up to those properties we cannot but question.

CONTEMPLATED CHANGES IN NEW YORK TRUST COMPANY LAWS AND
RESERVE REQUIREMENTS

The sub-committee on trust companies of the Commission appointed under legislative authority by Superintendent of Banks Van Tuyl, Jr., to revise the New York State banking and trust company laws, recently held a series of hearings ai. submitted to trust company representatives a number of proposed changes relating particularly to trust company statutes. Tentative drafts have been prepared by the various subcommittees on trust companies, savings banks and private banks which will be passed upon by the Commission as a whole before submitting the codified and amended bill to the Legislature early in February.

The most important changes contemplated in regard to trust companies and State banks relate to provisions which will not only place them more on a par with National banks in regard to reserves under the Federal Reserve, Act, but also permit them to secure membership in the Federal system if they desire. In other words the Commission does not intend to place any obstacle in the way of trust companies or State banks if they desire to subscribe to Federal Reserve bank stock. In order to effect this purpose it will be recommended to reduce reserve requirements. The Federal Reserve Act reduces the cash reserves of National banks in central reserve cities from 25 to 18 per cent. and requires 5 per cent. reserves against time deposits having not

less than thirty days to run. The New York law now requires that trust companies in Manhattan shall keep 15 per cent. in cash against demand deposits while in Brooklyn borough and other boroughs one-third of this amount may be kept as balance in qualified reserve banks; elsewhere in State 5 per cent. cash and 5 in bank.

The proposal of the trust company subcommittee is that Manhattan trust companies shall keep a cash reserve of 15 per cent. of which one-third may be kept in banks; for Brooklyn and other boroughs 13 per cent., of which five-thirteenths may be kept in banks; up-State trust companies 10 per cent. of which 5 per cent. may be kept in banks; in towns of the third-class 10 per cent. of which 3 per cent. shall be in vault. No reserves are required against time deposits.

The cash reserves required by the Federal Reserve Act will be counted as reserves required under State law where trust companies decide to become members of the

Federal system. It was found that no amendment was necessary to authorize trust companies to discount commercial paper of the character available for rediscount through Federal Reserve banks. There is no limitation regarding trust companies holding stock to the extent of six per cent. of capital and surplus of the Federal Reserve banks.

FEDERAL RESERVE ACT WILL PROVIDE SAFE AND
SOUND BANKING FACILITIES

CHARACTER OF CENTRAL BOARD A VITAL FACTOR

HON. ROBERT W. BONYNGE

Member of the National Monetary Commission

(NOTE: The author of the following article, Mr. Robert W. Bonynge, was a member of the National Monetary Commission appointed by Congress, and which reported the Central Reserve Bank bill. Mr. Bonynge's views on the Federal Reserve Act are particularly interesting because of his comprehensive study of banking conditions, both at home and abroad.)

THE

HE enactment of the Federal Reserve Act marks a distinct step toward the modernization of our antiquated banking and currency laws. It provides for the mobilization of bank reserves, the issuance of a currency that will in some measure be regulated in amount by business requirements and for a helpful co-operation between the banks for the preservation and utilization of our great banking resources.

These are the principal reforms for which all practical bankers and financial experts have been struggling for many years. It is the lack of these facilities that has made our national banking system so vulnerable. The incorporation of these features in the new Federal Reserve Act is a great achievement and one which a few years ago could hardly have been expected in so short a time. The country is to be congratulated upon the passage of the bill. There are known defects in the measure and others will undoubtedly be developed later, but all these can be corrected by subsequent amendments. The essential features of a good banking law are to be found in the measure and it therefore provides a safe foundation upon which we can erect a thoroughly scientific banking system.

The Federal Reserve Board, with the extensive powers given to it under the terms of the bill, will naturally, whether we have additional legislation or not, exercise all the functions of a central institution, and the reserve banks will, no matter what they may be called, become in effect branches of that central institution. That will be the natural evolutionary process of development. Thus the mistake of providing by the law for a number of reserve banks instead of one central institution with branches will ultimately be corrected by the ordinary course of events. The provision that the Federal reserve notes shall be obligations of the United States may cause the Government some embarrassment in case the credit of the Government should be strained in the event of war. It was a wholly unnecessary provision, but the notes are so well safe-guarded that it is not likely that the Government will experience any serious trouble by reason of the provision. When the public becomes accustomed to the new notes, it ought not to be difficult to amend the law by making them the obligations alone of the reserve banks and for which the resources of all the reserve banks should be liable.

There are other defects, such as the privilege of redeeming the notes "in lawful money" at a reserve bank which in truth contains the germ of

"fiatism" and the privilege given to banks outside of central reserve cities to make farm loans, but the amount of lawful money aside from gold and gold certificates is relatively small, and practically many of the National banks have been indirectly making farm loans for a number of years. Sooner or later the greenbacks will be retired and the notes of the reserve banks issued to take their place, and agricultural credit banks will be organized which will take over the business of farm loans.

Notwithstanding the defects in the measure, it is the duty of all to assist in making the new system a success. Very much will depend upon the character of the men who are named to constitute the Federal Reserve Board. If, as we have every reason to believe, men of practical banking experience and ability are appointed upon that board, we can confidently expect the new system to work successfully and to furnish all legitimate commercial and business interests with safe and sound banking facilities.

The fewer Federal reserve banks that are created, the better it will for the success of the new system. It is to be hoped that the Organization Committee will not create more than eight reserve banks which is the minimum number allowed under the provisions of the law. Each of the banks established should be strong and have adequate capital so as to command confidence. Branches of the reserve banks may and should be established wherever financial and commercial necessities require.

Unquestionably there should be established in New York City, as the financial and commercial center of the country, a Federal reserve bank that will favorably compare in resources, capital and strength, with the central banks of the leading nations of the world. An institution of that character in New York City would give strength to the entire system and aid and assist in the development of our international financial relations.

ADVANTAGE OF REGISTRATION OF COMMERCIAL PAPER UNDER FEDERAL RESERVE ACT

A NEW FIELD FOR TRUST COMPANY USEFULNESS

OWEN SHEPHERD

Treasurer, International Paper Company, New York