In an address before the bankers of the District of Columbia and Maryland he advised them to use their reserves whenever they had a pressing demand for loans. This, he said, in substance, was what a bank's reserve was for, and not to be locked up in the bank's vaults when the business needs of their respective communities demanded money.

This was a most peculiar statement for the Secretary of the Treasury to make, especially in the face of the provision of law which prohibited a national bank from making any loan when the lawful money reserve was below the legal requirement, and also prohibited the declaration of any dividends while the reserve was deficient.

The Secretary of the Treasury had no direct supervision of the national banks. That power was vested in the Comptroller of the Currency. If a bank neglected or refused to make good a shortage in reserve after due notice from the Comptroller to make such deficiency good, the association was subject to a receivership, but such receiver could be appointed only with the approval of the Secretary of the Treasury. This was the only exception in the banking laws which required the concurrence of the Secretary of the Treasury in the appointment of a receiver for a national bank. In all other cases the sole power of appointment was vested in the Comptroller of the Currency.

If, therefore, the Secretary of the Treasury who excepted public deposits from reserve requirements, before the law authorized such exception, had instructed the Comptroller of the Currency not to require the banks to carry reserve on such deposits, and the Comptroller, in recognition of the requirements of law, and in the exercise of his authority under the statute, declined to make the exception, what would have been the result? The Comptroller would have had no power to enforce the penalty for non-observance of the statute, as the Secretary would have said to him, "If you require the banks to carry reserve against Government deposits and they neglect or refuse to do so, I will not concur in the appointment of a receiver for such banks," and there the matter would have ended. But the spectacle was presented of the Comptroller of the Currency endeavoring to compel the banks to observe the law, and the Secretary of the Treasury advising them not to do so.

A few days before the Secretary of the Treasury made the press announcement relieving public deposits from reserve requirements, the Comptroller had made a call upon the national banks for a report of condition, and the reports were coming in and being examined and abstracted. The Comptroller had given no instructions in regard to changing the rule in respect to computation of reserve, and public deposits were being included in the computation as usual. A correspondent of a New York City newspaper called at the office and inquired of the Deputy Comptroller what was being done in regard to relieving the banks from carrying reserve on public deposits. The deputy informed him that there had been no change in the law or the rule of the office in that respect. On this information the correspondent wired his paper a sensational despatch to the effect that there was friction between the Comptroller and the Secretary in regard to reserve requirements and that the former had overruled the latter. As a result of this telegram Wall Street passed through a severe panic for about twenty minutes in the last hours of trading on October 3, 1902.

According to the account of one of the New York newspapers, the news from Washington was so disturbing and so plausibly authentic that for a time the market, which had been firm almost to buoyancy, was suddenly checked, and room traders and speculators were taken completely by surprise. Brokers on the floor of the Stock Exchange, observing the sudden check in orders from their offices, started to make inquiry as to the cause, but before they could do so were overwhelmed with orders to sell. Stocks dropped from one to five points, irrespective of value, but St. Paul suffered the most. The Secretary of the Treasury was appealed to for a confirmation or denial of the report, and, after conference with the Comptroller, issued the following statement:

A wholly unfounded report appears to have been sent from Washington yesterday, calculated to mislead with reference to the action taken by the Secretary of the

Treasury relative to the maintenance of reserve against government deposits secured by government bonds.

That there may be no misunderstanding either as to the law or the action taken by the department, the banks are advised that the National Bank Act lays down the rule that all associations shall maintain certain reserve against all deposits, failing to do which, the Comptroller of the Currency may, with the concurrence of the Secretary of the Treasury, appoint a receiver.

The law, therefore, lays down the rule that the reserve shall be maintained, but lodges a discretion with the Comptroller and with the Secretary as to the enforcement of the rule. You are therefore notified that the rule will not be enforced so far as it relates to government deposits secured by government bonds.

It must be borne in mind in this connection that it is not the intention of the department to encourage increased credit. On the contrary, very great conservatism should be exercised. But it is the desire of the department that no worthy business interest shall suffer simply because a bank has invested its money in government bonds to secure government deposits, and to that extent has relieved the Treasury Department from a growing surplus and thus restricted its capacity to extend accommodations.

While the law vested in the Secretary of the Treasury and the Comptroller of the Currency discretionary powers in regard to the appointment of a receiver for a bank which neglects or refuses to maintain the legal reserve, there was no authority or discretion vested in either of these officers at that time to except deposits, secured or unsecured, from the reserve requirements, and if the Secretary had the power to except Government deposits from reserve, simply because they were secured by Government bonds, he also had the power to except any other deposits that were satisfactorily secured.

The most creditable phase of this remarkable disregard of the requirements of the law was the fact that the New York City banks declined to recognize the Secretary's authority to make such exception, and the following day the Clearing House Association announced that twenty-five per cent. reserve would be carried upon total deposits, the same as usual, without exception.

When the correspondent who was responsible for sending the sensational message which caused the flurry in Wall Street, called at the Comptroller's office the next day, he was asked to explain why he sent such a despatch. He replied that he did so upon the authority of the Deputy Comptroller, who informed him that no change had been made in the rule for computing reserve, and that he assumed that as the Secretary had announced that reserve would no longer be required to be held against Government deposits and as the Comptroller was still including such deposits in reserve calculations, there must necessarily be some friction between the Comptroller and the Secretary on the subject, and he so wired his paper.

Up to the time the Secretary issued the statement above quoted, there had been no conference between him and the Comptroller on this subject. The Secretary was in New York City at the time he made the first announcement, and nothing was known in the Comptroller's office of his contemplated action except what was contained in the newspapers.