(10) The absence of a broad discount market in our system, taken together with the restrictive treatment of reserves, creates at times when serious financial disturbances are anticipated a condition of dependence on the part of individual banks throughout the country, and at the same time places the farmers and others engaged in productive industries at a great disadvantage in securing the credit they require for the growth, retention, and distribution of their product.

No open discount market

Helplessness of individual banks

Here we have emphasis on another aspect of the weakness of our old system resulting from the absence of a broad discount market. The absence of a discount market, and the dead-line restriction that was used to bind reserves, made each bank feel that in times of stress it would have to look out for itself. There was no market in which the bank could count on disposing of some of its perfectly good assets, and there was no central agency to which it could turn with assurance that assistance would be rendered. Hence, when a feeling of apprehension developed, efforts were made to anticipate difficulties by restricting credit and trying to strengthen reserves. Through such hoarding by the banks themselves their clients were seriously inconvenienced.

(11) There is a marked lack of equality in credit facilities, between different sections of the country, reflected in less favored communities, in retarded development, and great disparity in rates of discount.

The high capital requirement under the National Bank Law and the general opposition to branch-banking in most of the states discouraged the organization of independent banks except in the relatively larger communities where business moved in sufficient volume to justify large investments of capital. The result was that many small communities enjoyed no banking facilities whatever, and this naturally meant that the economic aid rendered by banks could not be extended to the inhabitants of such community.

(12) Our system lacks an agency whose influence can be made effective in securing greater uniformity, steadiness, and reasonableness of rates of discount in all parts of the country.

The scattered reserves and the consequent immobility of credit based upon them, taking into account also the absence of an open discount market, naturally led to great disparity in discount and loan rates over the country as a whole. Moreover, the lack of mobility resulted in relatively great fluctuation in each community, because with mobility a comparatively slight rise in rates in any community tends to attract funds from other communities.

Disparity in discount rates

No control of discount rates

(13) We have no effective agency that can 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.

This criticism refers particularly to the absence of proper facilities in agricultural districts at the season when the demand for credit is especially heavy in such districts. Our reserves were scattered, our banks were largely disconnected units, and our bank-note issue was utterly inelastic. Hence the farmer who needs credit seriously in the crop-moving season, and who needs it more particularly in the form of notes, seemed to be under special difficulties.

(14) We have no power to enforce the adoption of uniform standards with regard to capital, reserves, examinations, and the character and publicity of reports of all banks in the different sections of the country.

This is a political rather than a purely economic criticism. It grows out of the separation of state and federal regulation of our economic life. Banks have not been regarded simply as instruments of interstate commerce and hence as coming under the exclusive jurisdiction of the federal government. As already seen, the majority of the banks in the United States are organized under state laws. There arises, therefore, the great diversity in the control of the banks here referred to.

(15) We have no American banking institutions in foreign countries. The organization of such banks is necessary for the development of our foreign trade.

No facilities to meet emergencies

No uniform standards for banks

No foreign agencies

The experience of England and of Germany has shown the great advantage, not to say the necessity, of having in foreign countries, especially the great neutral markets like South America and the Orient, agencies of home banks, or independent institutions established by home interests for the purpose of financing foreign trade. Moreover, the operation of such over-seas banks is of great advantage in protecting the home credit situation in that bills drawn on and made payable in the different markets may be bought or sold, as the foreign exchange situation in the home market may require. We have never had banks in foreign countries to handle such business for us. We have depended for our foreign operations on alien bankers. This has involved heavy tribute to such bankers, and, since they have naturally favored the trade of their own country wherever they could, it has hindered the development of American foreign trade.

(16) The provision that national banks shall not make loans upon real estate restricts their power to serve farmers and other borrowers in rural communities.

This criticism is hardly in need of any further elucidation. It refers to the fact that in the agricultural districts prospective borrowers have little beside land to offer as security to the banks. Hence extreme limitations upon the acceptability of real estate as a basis of loans is a hardship on the farmers.

(17) The provision of law under which the government acts as custodian of its own funds results in irregular withdrawals of money from circulation and bank reserves in periods of excessive government revenues, and in the return of these funds into circulation only in periods of deficient revenues. Recant efforts to modify the Independent Treasury System by a partial distribution of the public moneys among national banks have resulted, it is charged, in discrimination and favoritism in the treatment of different banks.