2-3721

REMABTIS OF D. R. CBIS3ISGER, G07EBHE, FEDERAL RESERVE BOARD, BEFORE THE DISTRICT OF COLL7'LI A BANKERS' ASSO-

CIATION, MAY 24, 1923.

I n t h e p a s t two yea r s i t has been my f o r t u n e to be the r e c i p i e n t

of so much c o u r t e s y and c o n s i d e r a t i o n , of h e l p f u l c o o p e r a t i o n and. generous,

a s s i s t a n c e from the banking community of Washington, t h a t i t i s no t a l t o -

g e t h e r easy to f o r m u l a t e on t h i s occas ion a f i t t i n g e x p r e s s i o n of my a p -

p r e c i a t i o n f o r t h e s e added t e s t i m o n i e s of suppor t and l o y a l t y which come

to me t h i s even ing . I f e e l t h a t my deb t to the bank ing f r a t e r n i t y of the

D i s t r i c t i s one of t h o s e o b l i g a t i o n s which have no d a t e of m a t u r i t y , bu t

which go on accumula t ing a t compounded i n t e r e s t . F o r t u n a t e l y , hav ing ceased

to be Compt ro l l e r , I am not under t h e p r o f e s s i o n a l o b l i g a t i o n to take so

h a r s h a v iew of those i r r e g u l a r i t i e s which a r e involved i n c a r r y i n g overdue

i tems f o r an un rea sonab le t ime . I f the good w i l l account which the banker s

of Washington have been c a r r y i n g f o r me should be p r e s s e d f o r i n s t a n t

l i q u i d a t i o n , I am a f r a i d , t h a t , w i th a l l the good i n t e n t i o n s and amiable

s e n t i m e n t s i n t h e wor ld , I should have to take the bankruptcy r o u t e . So I

hope you w i l l go on l e t t i n g me make an occas iona l c u r t a i l a s I am t r y i n g to

do t o n i g h t , j u s t as a s o r t of acknowledgment of t h e o b l i g a t i o n and a s su rance

t h a t a t l e a s t I d o n ' t i n t e n d t o permi t i t to be ou t l awed .

When your P r e s i d e n t extended the i n v i t a t i o n to me t c come h e r e t h i s

even ing he conveyed the i n c i d e n t a l a s s u r a n c e t h a t I would no t be expec ted

to make a speech . Inasmuch as I subsequen t ly d i s c o v e r e d t h a t I had been pu t

down f o r an add re s s on a h i g h l y fo rmidab le s u b j e c t , I wish him to know h e r e

and now t h a t he d i d n ' t f o o l me f o r a moment. I knew a l l the t ime t h a t I

would have to make a speech , and the b e s t t es t imony I can g ive of my app re -

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c i a t i o n of the honor you have done me, c o n s i s t s in the f a c t t h a t I aim

h e r e , even a t the p r i c e of having to make a speech. But I c a n ' t r e f r a i n

from saying t h a t sometimes I have wondered i f we wou ldn ' t ge t on f a s t e r

with t a k i n g the government out of b u s i n e s s , and p u t t i n g bus ines s i n t o

government, i f you men of a f f a i r s could be induced to r e a d j u s t the s o c i a l

ameni t i es so t h a t o c c a s i o n a l l y a . ve i l - in t en t ioned c i t i z e n might ho ld a

p u b l i c o f f i c e wi thout i n c u r r i n g the susp ic ion t h a t ha r e a l l y does i t b e -

cause i t i s h i s only chance to get a f u l l - N e l s o n ho ld on an occas iona l

audience and compel i t to l i s t e n , whether i t wants t o do so or n o t .

I f i n d myself s e t down f o r some observa t ions about the d e s i r a b i l i t y

of the f u l l e s t p o s s i b l e exchange of c r e d i t i n fo rma t ion . That means of

course the f u l l e s t measure of coopera t ion to a s su re the soundness of the

bus ines s and banking s t r u c t u r e , Now, we bankers have long taken p r i d e i n

the c la im t h a t ours i s the g r e a t e s t coope ra t ive , the most h i g h l y s o c i a l i z e d

bus ines s in the world. The man who f i r s t conceived the idea of mobi l i z ing

the c r e d i t s , the l i q u i d resources and working a s s e t s of a community,

through the f u n c t i o n i n g of a bank, took t h e l onges t s t e p toward developing

a working phi losophy and procedure in s o c i a l i s m , t h a t has ever been t a k e n .

Al l the ph i losoph ies of Kar l Marx and Proudhon a re as a drop i n t h e bucket

compared with the tremendous s o c i a l f a c t t h a t was accomplished when the

f i r s t bank of d e p o s i t , i s s u e and d i s c o u n t , was s e t up . There i s a f a c t ;

a b i g , fundamental f a c t to which I wish i t were p o s s i b l e to d i v e r t some of

the a t t e n t i o n of those p a l e p ink r a d i c a l s who nowadays propose to accom-

p l i s h an economic r e v o l u t i o n in the i n t e r e s t of t h e p u b l i c , by such mild

and moderate p roposa l s as hanging the bankers and sending the "money t r u s t "

to p e r d i t i o n #

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A proper exchange of c r e d i t in format ion , i t has always seemed,

to me, i s a l o g i c a l and i ne v i t a b l e development in l i n e with t h a t p rogres s ive

s o c i a l i z a t i o n which has been going on in the realm of bus iness and f inance

from the time when the f i r s t bank of depos i t and d i scount was s e t up . The

whole s t r u c t u r e n e c e s s a r i l y r e s t s upon good f a i t h , upon mutual conf idence ,

and upon c e r t a i n r u l e s der ived from bus iness experience which j u s t i f i e s us

in expect ing tha t most debtors wi l l pay, and t ha t the g rea t ma j o r i t y of

d e p o s i t o r s w i l l not a l l want to withdraw the i r accounts a t the same t ime.

I t i s reasonably safe to assume tha t t h e r e a re not many among you ex-

per ienced gentlemen who are in t h i s room, who s e r i o u s l y be l i eve in the

guarantee of bank d e p o s i t s . Yet there i s a la rge c l a s s of people in the

community who are convinced tha t such a system could be made to work, and

tha t i t ought to be and would be but f o r the unreasoning h o s t i l i t y of the

bankers . Now, i t seems to me tha t the neares t pos s ib l e and p r a c t i c a l ap-

proach to an e f f e c t i v e and sa fe guarantee of bank d e p o s i t s , would be found

in a system tha t would come neares t to e l imina t ing the danger of bad loans .

I f a l l borrowers were good, a l l the a s s e t s of the banks would be good, a l l

the depos i t o r s would be f u l l y secured, bank f a i l u r e s wouldn' t happen, the

curve of i n f l a t i o n and d e f l a t i o n would be very much f l a t t e n e d o u t , and in

s h o r t , t h e l i f e of the bus iness man and the banker would become one long*

sweet dream.

Quite obviously , the way to accomplish a l l t h i s i s , so n e a r l y as

p o s s i b l e , to insure t ha t the banker w i l l not make u n f o r t u n a t e l o a n s . I f

t ha t could be e f f e c t e d the dishonest man would get no loans , the r e c k l e s s

man would be compelled to have a care about h i s a f f a i r s , the specu la to r

would be kept measurably under c o n t r o l . On the o ther s ide of the s h e e t ,

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t h i s conserva t ion of c r e d i t resources would make i t p o s s i b l e f o r the

honest man, the man of c h a r a c t e r , and p r o b i t y , and i n d u s t r y , and s ince re

good i n t e n t i o n s , to get the f a i r show and f a i r share to which he i s en-

t i t l e d . There w i l l always be enough of competi t ion among banks, enough

v a r i a t i o n in the psychology, the po in t s of view, the h a b i t s of mind, of

i nd iv idua l bankers", to prevent the c r e a t i o n of anything l i k e a t r u s t in

moneys and c r e d i t s . The proper o rgan iza t ion and in terchange of c r e d i t

informat ion i s , in s h o r t , simply one s t ep in the evo lu t ion of the funda-

mental idea of the bank, toward a more near ly p e r f e c t es tab l i shment in

i t s s o c i a l and economic r e l a t i o n s to the community.

The c r e a t i o n of c l e a r i ng houses and t h e i r development has marked

a long progress toward the r e a l i z a t i o n of t h i s i d e a l in banking. The

c l e a r i n g house examiner system, which i s now e s t a b l i s h e d in a cons iderable

number of c i t i e s , w a s a n a t u r a l development, po in t i ng i n the d i r e c t i o n of

tha t mob i l i za t ion of c r e d i t informat ion which, once p e r f e c t e d and in

p r a c t i c a l ope ra t ion , would be wellnigh the f i n a l guarantee of banking

s e c u r i t y and t h e r e f o r e of business s t a b i l i t y .

I t i s i n e v i t a b l e t h a t , j u s t a s the re w i l l always be some people

who i n s i s t upon such f a l s e remedies as the guarantee of d e p o s i t s , so

the re w i l l a l so be people to objec t most s t renuously t o the a p p l i c a t i o n

of some good and e f f i c i e n t measures of c o n t r o l . There a r e many among the

older bankers who can y e t remember when the r i g h t of the s t a t e to e n t e r ,

examine, and pub l i sh the r e p o r t s of cond i t ion of banks, was b i t t e r l y

con te s t ed . But who, in the i n t e r e s t of e i t h e r the borrower or the l e n d e r ,

the bank or i t s customer, would today propose t ha t examination and pub-

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l i s h e d r e p o r t s 1)8 dona away with?

In l i n e -vitii the growth of these i n s t r u m e n t a l i t i e s , has been

the development of c r e d i t a s s o c i a t i o n s . The c r e d i t man has coma i n t o

h i s own. He i s recognizee, a s one of t h e most impor tant f a c t o r s i n every

b u s i n e s s . Indeed, the c r e d i t man i s t he f i r s t l i n e of s a f e t y , behind

which a l l accommodations can reasonably be marshal led wi th s a f e t y . In

h i s l o c a l , r eg iona l and n a t i o n a l a s s o c i a t i o n s , he has c o n t r i b u t e d enormously

to the e s t ab l i shment of r e l i a b l e methods of bus ines s and of c r e d i t ex-

t e n s i o n . To a r t i c u l a t e h i s work with such a f a b r i c of c r e d i t in fo rmat ion

as has been sugges ted , would f a r t h e r s t r eng then the e n t i r e bus ines s and

banking s t r u c t u r e .

We must always keep i n mind, and in the d i s c u s s i o n of such

t o p i c s a s t h i s we can n o t too p e r s i s t e n t l y remind the p u b l i c , t h a t t he

banker does h i s bus ine s s c h i e f l y with o the r people J s money. Whatever i s

good f o r the banker , as a measure of assurance and s e c u r i t y and soundness,

i s good f o r the p u b l i c which d e p o s i t s with him. I t i s good a l s o f o r t h a t

overwhelming preponderance of the p u b l i c which, whether borrower or d e -

p o s i t o r or bo th , i s a c t u a t e d by good, sound, hones t i n t e n t i o n s . I t i s

a l t o g e t h e r to the i n t e r e s t of the banks t h a t bus iness s h a l l be kep t sound

and s a f e . I t i s e q u a l l y to the i n t e r e s t of b u s i n e s s , l e g i t i m a t e and d e -

se rv ing b u s i n e s s , t h a t the banks s h a l l be sound, r e l i a b l e , and s h a l l en joy

the confidence of the community. These th ings can only be p o s s i b l e i f the

banker posses ses the f u l l e s t and most r e l i a b l e i n fo rma t ion concerning the

s t a t u s of h i s cus tomers . In the long run , the customers w i l l be the

g r e a t e s t b e n e f i c i a r y , f o r such a system as t h i s , a p p l i e d i n moderat ion

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and through wise coope ra t i ons , would go very f a r t o i n s u r e t h e even

tenor and s t a b i l i t y of a l l b u s i n e s s .

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