Rand, McNally's Banking Magazine for May, 1888, contains an interesting article contributed by Comptroller Trenholm, outlining a plan for national currency reform.
This plan contemplated the formation of unions among the national banks, for the purpose of issuing currency based on their assets. The banks forming each union were to be required to have in the aggregate not less than three nor more than ten millions of capital. Each bank in the union was to appoint a deputy and the deputies were to form a board of control. When the deputies had convened and organized the union they were then to be authorized to apply to the Comptroller of the Currency for registration.
Each bank in the union was to be required to furnish to the board of control a certified copy of the resolution of its stockholders authorizing the association to enter the union, and binding the bank to make the notes issued by the union a first lien on all the assets of the banks forming the union.
Each board of control was to be required to appoint a chairman and a manager, subject to the approval of the Comptroller of the Currency, and the Comptroller was to appoint a Register of Currency, subject to the approval of the board of control.
The Register of the Currency was to receive circulation from the Comptroller and deliver it to the manager of the union, when the latter furnished to him the security required, consisting of unmatured business paper of the banks to an amount equal to not less than one and a third times the amount of the currency issued in exchange therefor.
The manager was to receive the security from the banks through the board of control, and, after approving its solvency, turn the security over to the Register and receive the notes issued thereon. Before the currency should be delivered to the bank the seal of the union was required to be imprinted thereon. This seal was to be in two parts, one part to be in the custody of the manager and the other to be held by the Register.
The plan also provided various regulations as to the manner in which the business of the board of control should be conducted, the deputies appointed, the incomplete circulation prepared in advance under the supervision of the Comptroller, the withdrawal and substitution of business paper as it matured, etc.
In addition to this security, a redemption fund was required to be maintained with the Treasurer of the United States equal in amount to five per cent. of the circulation outstanding, and a reserve fund of gold coin in bank equal to twenty per cent. of such circulation.
Prevision was made for the retirement of the notes of the insolvent union banks by the deposit of lawful money in the Treasury of the United States, and of any union when the aggregate capital of the banks forming such union became reduced from any cause to less than the amount required, or when dissolved in any other way.
Notes were not to be issued in excess of three-fourths of the unimpaired capital of the banks comprising the union, and were to constitute part of the national currency authorized by law.
The foregoing is a general outline of the currency plan proposed by Mr. Trenholm. The notes issued were to be a first lien on all the assets of the banks, each bank being to the extent of its assets liable for all the notes issued by any of the other banks composing the union.
The bill reported by the Banking and Currency Committee of the House of Representatives on April 21, 1908, known as "The Fowler Bill," and the Federal Reserve Act of December 23, 1913, were similar in some of their features to the plan of Comptroller Trenholm, as outlined above.
The Fowler Bill proposed to create a Division of Banking and Currency in the Treasury Department to take the place of the present Bureau of the Currency. This Division was to be in charge of a board of control, consisting of three men. This board was to supersede the Comptroller of the Currency, and was to divide the country at large into clearing-house districts. Each district was to have a clearing-house city, through which all the circulating notes were to be issued to the banks within that district.
The Act of Congress approved May 30, 1908, known as the Emergency Currency Law, contained a similar provision to that of the Trenholm plan and the Fowler Bill, for the division of the country at large into districts. The Act referred to provided for the formation of currency associations by banks of not less than ten in number, with an unimpaired capital and surplus of not less than five millions of dollars. The noteholder under each of these plans was made a preferred creditor.
Comptroller Trenholm seems to have modified his views in regard to this feature of his plan, as they are inconsistent with his objections to such a preference expressed a year earlier to the same proposition presented by the bankers.
From an administrative point of view all three plans were complicated and cumbersome, so far as affording an adequate means for a speedy and automatic expansion and contraction of the currency were concerned.