Saturday, May 4, 2013

May 4 (1913) "What are the essential defects of our current banking system?"

Senator Gilbert Hitchcock of Nebraska
One hundred years ago today, senators continued debates on banking and currency reform, that would ultimately result in the Federal Reserve Banking Act of 1913.

With the wounds from the Panic of 1907 still felt, lawmakers hoped to reduce the severity of panics by establishing a centralized banking system and a more "elastic" monetary system. On May 4, the Washington Herald detailed some of the issues lawmakers debated around the proposed reform.

Senator Gilbert Hitchcock from Nebraska issued a series of questions to bankers.  Below are excerpts from the front-page article.

"What are the essential defects of our current banking and currency system?
  Inelasticity of our circulating medium and insufficient supply when great exigencies arise--in time of panic--in crop moving periods and when foreign nations draw heavily from the United States--the gold exporting period.

What are the chief purposes to be attained from an improved banking and currency system? 
  Elasticity. A currency that will expand in volume when necessary and extract when the exigency is over.

Should the new system include state as well as national banks? 
  With the greatly diversified business of this country, all classes of banks are needed. It is extremely doubtful if a plan satisfactory to national banks and state banks with the varying degrees of power can be formulated.

Should reserve associations accept deposits except those of banks?
  No. They should not be competitors of banking institutions. This is the rock on which the first and second bank of the United States split."
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Flannery O'Connor

You shall know the truth and the truth shall make you odd.