Bankers' Convention

Out of their counting houses, as if the Pied Piper were playing to them, out of their counting houses and down to the sea, to the boardwalk by the sea, to Atlantic City. And the cynics who thought that bankers' ears knew no music but the clinking of doubloons on pieces of eight, laughed themselves into face, saying: "Ah well, if it is not gold that calls them, it is at any rate a golden jubilee!"

So far at least the cynics were right; for the bankers were hurrying to the 50th anniversary meeting of "banking progress" of the American Bankers' Association. Nearly 4,000 of them rallied to the meeting. Some of the high points:

Officers. Bank underlings who tug valiantly at their bootstraps throughout the land were again encouraged by the Association's annual bow in their direction.-For President of the A. B. A. was chosen the noted Alabama banker, Oscar Wells, President of the First National Bank of Birmingham. Born in a lopsided Missouri log cabin, Mr. Wells had tilled the soil, attended an obscure college, and risen from the springboard of his uncle's bank to be first Governor of the Federal Reserve Bank of Dallas, Tex. He is rubicund yet determined; his rise has not been too meteoric; he has been heard to say that "launching the Federal Reserve Bank was a task entailing much drudgery on the part of the governors." Well pleased, his peers marked him as an ideal chief.

For First Vice President they chose Melvin A. Traylor, President of the First Trust & Savings Bank of Chicago. As Second Vice President, Thomas R. Preston, President of the Hamilton Trust & Savings Bank of Spring City, Tenn., will reap the reward of having worked without pay to learn the banking business, some 35 years ago.

Scholarships. A report on State contributions to the Association's fund to establish 100 banking and economic scholarships in American colleges was read. Twenty states were found to have filled their subscription quota, with a total of 1313,675 pledged toward the proposed fund of $500,000.

Free Service? A flapper with twelve one-dollar-bills and a rouged smile should not be entitled to a fancy checkbook, according to banker C. W. Allendoerfer of Kansas City, who fulminated against the length to which "free service" is being carried by banks. He declared that country correspondents who want theatre tickets bought for them should be humored; but that a line must be drawn somewhere. Accounts must be examined to discover whether they are really profitable.

Underwood Speech. For the instruction of the assembly Senator Oscar W. Underwood of Alabama drew an imaginary line from Baltimore to San Francisco, and called attention to the fact that every member of the Interstate Commerce Commission hails from north of that line. "The South and West must be represented," opined Senator Underwood, in advocating that the weaker railroads of the country be amalgamated with the stronger. Such a move, he declared, would make for a stable and prosperous condition among the railways, on the basis of which rates could be determined with fairness to both shipper and carrier.

But the foremost matter--not an issue but a program--of the meeting was the advocacy of the renewal of the charter of the Federal Reserve System.

The Economic Policy Commission of the A. B. A. headed by deliberate speaking Evans Woollen, of Indianapolis, one of the able leaders among middle western bankers, presented its report recommending: 1) that the A. B. A. petition Congress to renew at once the charter of the Federal Reserve System for an indefinite period or, preferably, for 99 years--the same period for which National Banks are now chartered; 2) that Congress be asked not to confuse the issue by attaching to the bill renewing the charter any amendments of the Federal Reserve Act, preserving to itself, as it has in the past, the right to amend that act.

The emphasis of the report was that what was most needed was assurance of renewal; let Congress do as it likes about directing how the System shall be conducted, but let the financial organization of the country know that it can rest on its cornerstone, the Federal Reserve System, for a long period of years.

The Federal Reserve System is only about eleven years old. Although the Federal Reserve Act was passed late in 1913, the organization did not begin to function until the following autumn, after War in Europe had begun.

At this time the twelve Federal Reserve Banks* were organized. These banks are really banks for banks. The member banks maintain reserves in their Reserve Banks, and have the privilege of rediscounting "commercial paper," that is, the short-term obligations of business houses and of agriculturalists.

Since the reserve bank discount rate (of interest) is normally lower than that which the member banks demand of their customers, this privilege opens an opportunity for profit to the members. It also enables them, faced with sudden demands for cash, to rediscount their '"paper" and obtain cash quickly. This system has prevented many banks from being forced to close by a shortage of cash.

The twelve banks are controlled by the Federal Reserve Board. This Board is composed of the Secretary of the Treasury, the Controller of the Currency, and of six other members appointed by the President with the consent of the

Senate. This Board has the power to fix the rediscount rates of the Reserve Banks. This is an important function in preventing panics and in ministering to the general health of the financial community. If the Reserve Board believes that there is evidence of inflation, speculation, unwarranted high prices, overexpansion in industry, in short too much of a boom--it is empowered to raise the Reserve Bank's rediscount rates. This makes it more expensive for member banks to borrow from it. They in turn make it harder for their customers to borrow, and expansion is checked before it reaches alarming proportions. By lowering the rediscount rate the Board can indirectly induce the reverse process. This power of controlling the country's business through its supply of credit, is all-important, productive of much good if properly exercised and capable of much pain if abused.

The profits of the Federal Reserve Banks have been considerable; were so, especially in the years immediately following the War. Dividends of not more than 6 per cent are allowed by law, and are paid to the stockholders (member banks). Anything beyond this amount goes partly to the surplus of the Reserve Banks, and in lara:e part to the Government. The highest profits were made in 1920, when the net earnings of the Reserve Banks were 8149,000,000. and the dividends paid to stockholders amounted to only 85.000.000. In recent years the earnings have been far less. In 1923, for example, the net earnings were $12.700.000. of which $6,000,000 was disbursed in dividends. $2,500,000 was set aside as surplus, and $3,600,000 paid to the Government.

*For the last three years the Presidents of the Association have been: In 1922, the son of a tanner (John H. Puelicher) ; in 1923, a former country school teacher (Waiter W. Head); and in 1924, a grown-np Irish immigrant (William B. Knox). -There is a Federal Eeserve Bank of Boston, New York, Philadelphia, Cleveland, Richmond. Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, San Fran-cis'co.