Bank Bill

Only three times since adopting the closure rule* in 1917 has the Senate enforced it. The first occasion, in 1919, was to restrict debate on the Treaty of Versailles; the second, in 1926, on the World Court debate; the third, last week, on the McFadden-Pepper branching banting bill debate. This banking bill, the most important since the Federal Reserve Act, was approved by the Senate, 71 to 17, on the day after the adoption of closure; was sent to President Coolidge. Soon he is expected to sign it. The Bill has been pushed around Congress in sundry forms for four years. In its final shape it is an elaborate compromise and contains a rider which nearly dwarfs the bill itself. The McFadden-Pepper bill provides: 1) That national banks be allowed to establish branches in states which permit state banks to have branches. (Twenty-two states now permit branch banking.) One limitation is that there shall be no national bank branches in towns of less than 25,000 population and only one branch in towns between 25,000 and 50,000. The chief aim of the McFadden-Pepper bill is to enable national banks to compete more effectively with state banks. 2) That the Federal Reserve Banks' charter, which expires in 1934, be renewed for an "indeterminate" period. This is the rider. It puts the positive stamp of approval of a Republican administration on the greatest domestic achievement of the Wilson regime. To be sure, it would be possible for any Congress after 1934 to abolish the Federal Reserve system, but what Congress would dare and what President would permit the destruction of a well-tested stabilizer of banking? The Federal Reserve system, as many a banker will agree, is the U.S.'s most successful extra-curriculum activity. Men responsible for Federal Reserve Bank laws are already personages of history, perhaps none more so than Senator Carter Glass, 69, peppery Virginian. He has been close to the Federal government/- while these laws took body. Last week he wrote: "We have been so absorbed here [in Congress] that I have not considered it desirable to pause long enough to disturb a queer dream about the paternity of the Federal Reserve act." Less patient "fathers," at dinner tables, might justly say: "In 1913, we who were keen to the inflexibility of the old National banking laws, succeeded in putting through the Congress the Federal Reserve Bank law. . . ." Alexander Hamilton created a national bank for the new U. S. None the less there were major business crises in the U. S. in 1819, 1836, 1847, 1854, 1857, 1869, 1873, 1884, 1893, 1903 and 1907. Some of these crises were panics. "We men of the Congress have prevented such crises; we invented a new financial tool. ... In England last week Reginald M'Kenna, Chairman of the London Joint City and Midland Bank, great institution, and onetime (1915-16) Chancellor of the Exchequer of Great Britain, marveled at our device; suggested that a modification of it be applied to British banking. . . ." The twelve Federal Reserve Banks,* whose charters the Congress last week voted to extend indefinitely beyond 1934, are banks of discount. Member banks--and all national banks must be members of the Federal Reserve system, whereas state banks may join if soundly qualified--that need emergency cash can go to their regional Federal Reserve Bank and discount their notes. Each Federal Reserve Bank has a vast reservoir of gold and lawful money to lend out. Each has a vaster credit. For every $100 of specie or currency in its vaults it can issue $250 worth of its own bank notes; and, besides, for every $100 deposited with it it can give almost $200 of credit. The credit of Federal Reserve Banks is as expansive as wishes, and as flexible. Men scoffed at the Federal Reserve Bank law when President Woodrow Wilson approved it in 1913. In 1914, it was thought that the Federal Reserve Banks prevented a U. S. business crisis from becoming "a panic. In 1922 crisis came again, but no panic. The banks functioned successfully. Men who fostered the system may well chronicle themselves ancestors.

*This rule permits a two-thirds majority of those present to set a time limit on debate and force a vote on the pending bill or resolution. The fact that closure has rarely been enforced shows that Senate minorities are unwilling to give up the filibuster.

/-Representative from Virginia, 1903-18, President Wilson's Secretary of the Treasury, 1918-20; Senator from Virginia since 1920.

*At Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, San Francisco.