On Monday, October 21, 1907, the National Bank of Commerce of New York City announced its refusal to clear for the Knickerbocker Trust Company of the same city.  The trust company had deposits amounting to $62,000,000.  The next day, following a run of three hours, the Knickerbocker Trust Company paid out $8,000,000 and then suspended.

One immediate result was that banks, acting independently, held on tight to the cash they had in their vaults, and money went to a premium.  According to the experts who investigated the situation, this panic was purely a bankers' panic and due entirely to our system of banking, which bases the protection of the financial solidity of the country upon the individual reserves of banks.  In the case of a stress, such as in 1907, the banks fail to act as a whole, their first consideration being the protection of their own reserves.

The conditions surrounding previous panics were entirely different.  In 1873 the currency was inconvertible and depreciated, and the banks could not increase their available cash reserve by the acquisition of gold.  About twenty years later silver purchases weakened the monetary structure and caused distrust of American securities at home and abroad.  The panic of 1907 was not preceded by any legislative disturbances or monetary unsoundness.

This panic was preceded by a season of greatest prosperity.  It was followed by a widespread demand for currency reform.  What economic students had been urging for a long time at last, as a result of this panic, culminated in the appointment of a National Monetary Commission by Congress and ultimately in the Federal Reserve Act of 1913.  A study of monetary conditions was authorized by a Republican administration, and remedial legislation was enacted by a Democratic administration.

The immediate result of this panic was the enactment of a temporary measure known as the Aldrich-Vreeland emergency currency act, which was to expire by limitation on June 30, 1914.  This act permitted the incorporation of national banks into associations similar to clearing houses and the issuance of "emergency" currency in times of stress upon certain securities approved by the authority of these associations and the government, which securities could be other than government bonds.

It was some time before the banks would organize under the authority of this act, the claim being made that the law would not work.  Finally the Secretary of the Treasury during the Taft administration persuaded the banks in a number of the cities to organize.  This, it was believed, was merely for the purpose of a pretense, as no one ever contemplated that the terms of the temporary act would be put into practice, and experience since has proven the truth of this prediction.

The National Monetary Commission was composed of
Nelson W. Aldrich, of Rhode Island, chairman; 
Edward B. Vreeland, of New York, vice chairman; 
Julius C. Burrows, of Michigan; 
Eugene Hale, of Maine; 
H.M. Teller, of Colorado; 
H.D. Money, of Mississippi; 
Theodore E. Burton, of Ohio; 
Jas. P. Taliaferro, of Florida; 
Boise Penrose, of Pennsylvania; 
John W. Weeks, of Massachusetts; 
Robert W. Bonynge, of Colorado; 
L.P. Padgett, of Tennessee; 
Geo. F. Burgess, of Texas; 
A.P. Pujo, of Louisiana; 
Geo. W. Prince, of Illinois, and Jas. McLachlan, of California. 
A. Piatt Andrew, of Massachusetts, later Assistant Secretary of the Treasury during the Taft administration, was employed as an assistant to the commission and did most of the formulative work of that body.

The commission conducted investigations and held hearings in this country and abroad.  The greater part of the energies of the commission, however, were expended in collecting an adequate working library.  Volumes on the various banking systems of the world were prepared by the leading economic students of the countries in question, and all were published by the commission.  Because of the large monetary outlay made in this direction the Democrats criticized the commission very severely.

The National Monetary Commission, upon investigation, discovered the principal defects in our banking system to be in that:

"1.  We have no provision for the concentration of the cash reserves of the banks and for their mobilization and use wherever needed in times of trouble.  Experience has shown that the scattered cash reserves of our banks are inadequate for purposes of assistance or defense at such times.

"2.  Antiquated Federal and State laws restrict the use of bank reserves and prohibit the lending power of banks at times when, in the presence of unusual demands, reserves should be freely used and credit liberally extended to all deserving customers.

"3.  Our banks also lack adequate means available for use at any time to replenish their reserves or increase their loaning powers when necessary to meet normal or unusual demands."

There were seventeen of these "principal" defects in all, but this number will suffice to indicate the remedy which would naturally be proposed.  In company with Dr. Andrew, Senator Aldrich finally drafted a plan to remedy the conditions.  It was strictly Senator Aldrich's plan, but the Monetary Commission gave it the stamp of approval.  As later appearing in the report of the commission, the plan was as follows:

"It is proposed to incorporate the National Reserve Association of the United States with an authorized capital equal to 20 per cent of the capital of all subscribing banks, of which one-half shall be paid in and the remainder shall become a liability, subject to call * * * * It is also provided that before the reserve association can commence business, $100,000,000 of capital must be paid in cash.  All State banks and trust companies conforming to the provisions of the bill with reference to capitalization and reserves and all National banks are entitled to subscribe for stock and to become members of the association.  Shares in the association are not transferable and can not be owned otherwise than by a subscribing bank or in any other than the proportion named.

"It is proposed to group into local associations all subscribing banks located in contiguous territory.  The local associations are to be organized into district associations, in each of which shall be located a branch of the National Reserve Association; and the district associations, which shall be so arranged as to include all the territory of the United States, are combined to form the National Reserve Association of the United States.

"One of the principal functions of the local associations is to guarantee, upon application, the commercial paper of individual banks which may be offered to the branches for rediscount * * * * The local association may, and in most cases would, require from the bank making the application satisfactory security for the guarantee.  Local associations are authorized in serious emergencies to guarantee the direct obligations of subscribing banks with adequate security * * * *.  A local association may decline to give the guarantees provided for under either of these sections.  Local associations may also, by vote of three-fourths of their board of directors and the approval of the National Reserve Association, assume and exercise the powers and functions of clearing houses.  They are required also to perform such services in facilitating domestic exchanges as, in the opinion of the National Reserve Association, the public interests may require."

Speaking elsewhere in the report, the proposed association was described as follows:

"It is not a bank, but a co-operative union of all the banks of the country, with very limited and clearly defined functions.  First, it holds a portion of the cash reserves of the banks of the United States, with the provision for their use only for specific purposes;  second, it is granted the power to issue circulating notes under strict governmental regulations;  third, through the maintenance of its own reserves and the character and extent of its resources, it is required to sustain the credit of the banks and of the country under all circumstances.  All of its operations are confined to, or incidental to these purposes, the only exception being the trans action of its business as the fiscal agent of the government of the United States."

When the Democrats gained control of the House of Representatives in the political elections of 1910, the offices being filled in 1911, they forced the National Monetary Commission to make its report [Tuesday, January 9, 1912.] and wind up its work.  In making this report, Senator Aldrich outlined a plan for establishing a National Reserve Association, with regional institutions as indicated above.  Immediately the Democrats attacked this as being typically republican and a plan that would tend further to concentrate the control of money in Wall Street.  Many substitute Democratic plans for monetary reform were offered by the leaders of the party.  Beyond occasional discussion of the subject, the banking question was not again brought to the front until the Democratic platform of 1912 was adopted in Baltimore.  Concerning banking legislation, this platform said:

"We oppose the so-called Aldrich bill, or the establishment of a Central Bank, and we believe the people of the country will be largely freed from panics and consequent unemployment and business depression by such a systematic revision of our banking laws as will render temporary relief in localities where such relief is needed, with protection from control or domination by what is known as the Money Trust.

"Banks exist for the accommodation of the public and not for the control of business.  All legislation on the subject of banking and currency should have for its purpose the securing of these accommodations on terms of absolute security to the public and of complete protection from the misuse of the power that wealth gives to those who possess it.

"We condemn the present methods of depositing Government funds in a few favored banks, largely situated in or controlled by Wall Street, in return for political favors, and we pledge our party to provide by law for their deposit by competitive bidding in the banking institutions of the country, National or State, without discrimination as to locality, upon approved securities, and subject to call by the government."

While Chairman Pujo, of the House Banking and Currency Committee, was, with the aid of Attorney Samuel Untermyer, of New York, attempting to unearth sensational data relative to the existence of a Money Trust, Carter Glass, of Virginia, with his sub-committee from the same committee, was giving serious consideration to real banking legislation.  Because of the bizarre nature of the Money Trust probe, but little was said of the Glass Committee, and thereby the country generally heard very little about the plans for constructive legislation.

Mr. Glass called a notable array of witnesses, including bankers from the most important financial centers and monetary experts.  The short session of Congress came to an end on March 4, 1913, and the extra session was called April 7 of the same year by President Wilson to consider tariff revision.

Members of Congress are not students of finance, but rather students of politics.  That is why it is so difficult for a scholar of finance to fathom out the reasons for the interesting fight made over the currency bill in the first and second sessions of the 63rd Congress.  For the same reason those students of politics who did all the fighting were unable to fully understand the financial problem which they were supposed to be remedying by legislation.

In the spring of 1913 the newspapers began to publish reports that Carter Glass, the ranking Democrat on the House Banking and Currency Committee, had drafted a currency bill to be proposed to the President and Congress.  As a matter of fact, there was some doubt for a time whether Mr. Glass would receive the chairmanship of that committee.  Finally precedent prevailed and Mr. Glass was named chairman.  H. Parker Willis, an economic student, it was later discovered, had drafted a currency bill for Mr. Glass.  Dr. Willis was then in the employ of Mr. Glass as a monetary expert.  The bill which the newspapers attributed to Mr. Glass was really the bill drafted by Dr. Willis.  Following the elections of 1912, Mr. Glass and Dr. Willis had frequently gone to Trenton, N.J., for conferences with President-elect Wilson on this matter.  It was presumed that they were, consequently, working in the interest of the new Democratic executive.

Only one thing stood in the way.  That was the tariff legislation, which was a party promise.  So until this was assured, the President withheld his consent to make a fight for currency legislation.  Consequently it was not until August 29 [Friday, the main discussion was Hetch Hetchy] that the currency bill was first introduced.  This bill bore the name of the Glass-Owen bill, because in its final shape it was the result of conferences between Mr. Glass, the President, Secretary of the Treasury McAdoo, Secretary of State Bryan and Senator Owen, chairman of the newly organized Banking and Currency Committee of the Senate.

Inasmuch as the bill was the joint product of the leaders of both houses and the recognized responsible persons in the Democratic party, it was to be expected that it would be easy to get it through Congress.  Such was not the case, however.  Representative Henry, of Texas, organized an insurgent move against the bill.  Mr. Henry, it was reported, had a quarrel with the White House and hoped in this manner to square matters.  He obtained the support of Representative Ragsdale, of South Carolina,[voted yes] and Representative Wingo, of Arkansas,[voted yes] both members of the Banking and Currency Committee and both new members in Congress.  The Texas Congressman based his fight upon the demand for so-called "agricultural" currency.  He said that, in as much as the proposed bill provided for asset currency, it should permit a farmer to store his agricultural products in warehouses and receive loans on the warehouse receipts.

Only the Democratic members of the House committee met to consider the bill introduced by Mr. Glass, but the first meeting resulted in almost a riot.  It was impossible to accomplish anything.  Several meetings were wasted in a fruitless discussion of procedure.  Finally, as a result of pressure from the White House the Democrats agreed upon a report on the bill, but the insurgents forced a caucus.  As a result of the caucus, which lasted over a week, all the Democrats came together, and Mr. Henry retired from the field of opposition.  The Republican members of the committee were called in and a formal vote on the bill was taken.  This resulted in a report to the House on September 9, where the measure was perfunctorily debated and finally adopted on September 18 by a vote of 286 to 85.

The Speaker. The question is, Shall the bill pass ?

Yeas--- Abercrombie, Adair, Adamson, Aiken, Alexander, Allen, Ashbrook, Aswell, Bailey, Baker, Baltz, Barkley, Barnhart, Bartlett, Bathrick, Beakes, Beall, Texas, Bell, Cal., Bell, Ga., Blackmon, Booher, Borchers, Borland, Bowdle, Brockson, Brodbeck, Broussard, Brown, W.Va., Browne, Wis., Bruckner, Brumbaugh, Buchanan, Ill., Buchnnan, Texas, Bulkley, Burgess, Burke, Wis., Burnett, Byrnes, S.C., Byrns, Tenn., Candler, Miss., Caraway, Carew, Carlin, Carr, Cary, Church, Clancy, Clark, Fla., Claypool, Clayton, Cline, Collier, Connelly, Kans., Connolly, Iowa, Conry, Cooper, Covington, Cox, Cramton, Crisp, Crosser, Cullop, Dale, Davenport, Decker, Deitrick, Dent, Dershem, Dickinson, Dies, Difenderfer, Dillon, Dixon, Donovan, Dooling, Doolittle, Doremus, Doughton, Driscoll, Dupre, Eagan, Eagle, Esch, Faison, Falconer, Farr, Fergusson, Ferris, Fess, Fields, FitzHenry, Flood, Va., Floyd, Ark., Foster, Fowler, Francis, Frear, Gallagher, Gard, Garner, Garrett, Tenn., Garrett, Tex., George, Gerry, Gittins, Carter Glass, Godwin, N.C., Goeke, Goldfogle, Goodwin, Ark., Gordon, Gorman, Goulden, Graham, Ill., Gray, Gregg, Griffin, Gudger, Hamill, Hammond, Hardwick, Hardy, Harrison, Hart, Haugen, Hay, Hayden, Heflin, Helgesen, Helm, Helvering, Henry, Hensley, Hill, Hinebaugh, Hobson, Holland, Houston, Howard, Hoxworth, Hughes, Ga., Hull, Humphreys, Miss., Igoe, Jacoway, Johnson, Ky., Johnson, S.C., Jones, Kelley, Mich., Kelly, Pa., Kennedy, Conn., Kent, Kettner, Key, Ohio, Kindel, Kirkpatrick, Kitchin, Konop, Korbly, Lafferty, Lazaro, Lee, Ga., Lee, Pa., Lenroot, Lesher, Lever, Lewis, Md., Lieb, Charles Lindbergh, Lindquist, Linthicum, Lloyd, Lobeck, Logue, Lonergan, McAndrews, McDermott, McGillicuddy, McLaughlin, MacDonald, Maguire, Nebr., Maher, Manahan, Mapes, Metz, Mitchell, Montague, Moon, Morrison, Moss, Ind., Murdock, Murray, Okla., Nelson, Nolan, J.I., Norton, O'Brien, Oglesby, Oldfield, O'Leary, O'Shaunessy, Padgett, Page, Palmer, Patten, N.Y., Pepper, Peters, Peterson, Phelan, Porter, Post, Pou, Quin, Ragsdale, Rainey, Raker, Rauch, Rayburn, Reed, Reilly, Conn., Reilly, Wis., Riordan, Rothermel, Rouse, Rubey, Rucker, Rupley, Russell, Sabath, Saunders, Scully, Seldomridge, Shackleford, Sharp, Sherley, Sherwood, Sims, Sisson, Smith, J.M.C., Smith, Md., Smith, Minn., Smith, N.Y., Smith, Samuel W., Smith, Tex., Sparkman, Stafford, Stanley, Stedman, Stephens, Cal., Stephens, Miss., Stephens, Nebr., Stevens, N.H., Stone, Stout, Stringer, Sumners, Taggart, Talcott, N.Y., Tavenner, Taylor, Ala., Taylor, Ark., Taylor, Colo., Taylor, N.Y., Ten Eyck, Thacher, Thomas, Thomson, Ill., Tribble, Tuttle, Underhill, Oscar Underwood, Vaughan, Walker, Walsh, Watkins, Watson, Weaver, Webb, Whaley, Whitacre, White, Williams, Wilson, Fla., Wingo, Woodruff, Young, N.Dak., Young, Tex., The Speaker ---287

Nays--- Anderson, Anthony, Austin, Avis, Barchfeld, Barton, Britten, Browning, Burke, Pa., Butler, Calder, Callaway, Campbell, Copley, Curry, Davis, Dunn, Dyer, Edmonds, Elder, Fordney, French, Gillett, Good, Graham, Pa., Green, Iowa, Greene, Mass., Greene, Vt., Griest, Guernsey, Hamilton, Mich., Hamilton, N.Y., Hawley, Hinds, Howell, Humphrey, Wash., Johnson, Utah, Johnson, Wash., Kahn, Keister, Kennedy, Iowa, Kennedy, R.I., Kiess, Pa., Kinkaid, Nebr., Knowland, J.R., Kreider, La Follette, Langham, Langley, McKenzie, Madden, Mann, Mondell, Moore, Morgan, Okla., Morin, Moss, W.Va., Mott, Payne, Platt, Plumley, Powers, Roberts, Mass., Roberts, Nev., Rogers, Scott, Sells, Shreve, Sinnott, Slemp, Sloan, Steenerson, Sutherland, Switzer, Temple, Towner, Treadway, Vare, Volstead, Wallin, Walters, Willis, Winslow, Witherspoon, Woods ---85.

Answered "present"--- McGuire, Okla., Talbott, Md. ---2.

Not voting--- Ainey, Ansberry, Bartholdt, Bremner, Brown, N.Y., Bryan, Burke, S.Dak., Cantrill, Carter, Casey, Chandler, N.Y., Curley, Danforth, Donohoe, Edwards, Evans, Fairchild, Finley, Fitzgerald, Gardner, Gilmore, Hamlin, Hayes, Hughes, W.Va., Hulings, Keating, Kinkead, N.J., L'Engel, Levy, Lewis, Pa., McClellan, McCoy, McKellar, Mahan, Martin, Merritt, Miller, Morgan, La., Murray, Mass., Neeley, O'Hair, Parker, Patton, Pa., Prouty, Richardson, Roddenbery, Slayden, Small, Smith, Idaho, Stephens, Tex., Stevens, Minn., Thompson, Okla., Townsend, Wilson, N.Y. ---55.

So the bill was passed.

The action of the House of Representatives was so speedy that the country hardly had time to fully understand the measure that the new Democratic administration was forcing upon it.  The Senate had especially created a new committee, the Committee on Banking and Currency, to consider this measure, and placed at the head of it Senator Robert L. Owen, of Oklahoma.  Senator Owen had made repeated attempts to call his committee together ever since the bill was introduced in the House, but without success.  The members of the Senate committee were opposed to precipitated action.

In August a hurried call of the American Bankers' Association was convened in Chicago and a committee of bankers elected to wait upon Congress.  This committee was given definite instructions as to what features of the bill to oppose.  The bankers were permitted to appear before the Senate committee the first of September.

This again brought forth some criticism from the White House and the chairman of the House banking committee, Mr. Glass.  It was insisted that the sole objection of the bankers to the House bill was that it contemplated the shifting of bank reserves, and to this only the large banks in the reserve cities were opposed.  The President was unwilling that the Senate committee should delay action long enough to listen to the arguments of the bankers, but he failed to obtain his wish as completely as he did in the House.

The opening of hearings before the Senate committee brought forth many witnesses who clamored to be heard.  The hearings stretched through September and well up into October.  The printed records of these hearings [3,200 pages] covered many times the number of pages as did the hearings before the House committee.  The hearings were more complete than the hearings on the House side because the witnesses had a definite proposition before them to discuss.  Before these were completed a second convention of bankers, more especially for the country banks, was held in Boston, at which another delegation was sent to oppose certain features of the bill before the Senate committee.

The country bankers had many and varied complaints to make.  They opposed anything like a free clearing house for checks, they opposed the large subscription to stock of the reserve banks by country banks and they opposed the establishment of savings departments and the segregation of capital.  But it was not until the concluding days of the hearing that the most dramatic moment was witnessed.

Frank A. Vanderlip, of the National City Bank, New York City, reappeared as a witness before the committee, and offered a comprehensive plan for the establishment of a central reserve bank, owned by the public and banks jointly and controlled by the government.  It was evident that Mr. Vanderlip had been requested to take this step upon advice of certain members of the Senate committee.  Later the truth of this assumption was verified, when the Republican members of the committee reported this plan in modified form to the Senate.

Hearings were closed in October, and the full membership of the Senate committee, both Republicans and Democrats, went into executive session on the bill.  In the meantime repeated attempts were made to persuade the President to permit Congress to adjourn and to take up the currency bill at the regular session to meet in December.  This the President consistently refused to do.  As a consequence the Congress remained technically in session without stop, thereby merging the extra session called in April with the regular session beginning the first Monday in December.

In the meantime the administration bill was by no means having an easy time in committee.  Upon the fundamentals the administration Senators were every time out-voted.  Senators O'Gorman, of New York, Reed, of Missouri, and Hitchcock, of Nebraska, refused to stand in line with the administration's policies.  The President called members of the committee to the White House and lectured them and did everything he could to whip them into line.  Finally he had his followers in the Senate call a Democratic conference on the bill, having the statement published that the Democrats could not stand by any report from the committee which failed to receive the support of the majority members.

Upon the day of the conference it was learned that Senators O'Gorman and Reed were back in the Democratic ranks, thereby permitting six Democratic Senators to come together on a bill.  Senator Hitchcock still remained recalcitrant.  The Democratic conference was dismissed without action and the six Democratic members of the committee left the committee room and began preparing a report on the bill in private.  This left Senator Hitchcock and five Republicans in the committee room, who also began the preparation of a separate report to the Senate.  On November 20 the two sections of the committee came together and agreed to report a disagreement to the Senate, transmitting two recommendations on the House bill.  The report was filed with the Senate two days later.

Immediately plans were drawn for hurried action on the bill.  It was desirous that the measure be placed on the statute books before the holiday recess.  A Democratic caucus was called which decided to hold the Senate in daily sessions from 10 o'clock in the morning until 11 o'clock at night until a final vote was had on the bill.  Furthermore this caucus took up the Democratic draft of the bill, revised it slightly, and endorsed it for Democratic favor.

This action practically assured the passage of the Democratic measure, but the Republican minority in the Senate was able to compel some delay.  The minority was successful in keeping up the de bate until the week preceding Christmas.  This was indeed a task as the Democrats indulged in the debate but sparingly.  Finally a vote was taken on the evening of December 19, resulting in a victory for the Democratic measure by a vote of 54 to 34 [out of 95], several Republicans voting with the Democrats.

The bill was read the third time.

The Vice President.  The question is, Shall the bill pass ?

Mr. Owen.  I ask for the yeas and nays.

The yeas and nays were ordered, and the Secretary proceeded to call the roll.

The result was announced--- yeas 54, nays 34, as follows:

Yeas--- Ashurst, Bacon, Bankhead, Bryan, Chamberlain, Chilton, Clarke, Ark., Crawford, Fletcher, Gore, Hitchcock, Hollis, Hughes, James, Johnson, Jones, Kern, Lane, Lea, Lewis, Martin, Va., Martine, N.J., Myers, Newlands, Norris, O'Gorman, Overman, Owen, Perkins, Pittman, Poindexter, Pomerene, Ransdell, Reed, Robinson, Saulsbury, Shafroth, Sheppard, Shields, Shively, Simmons, Smith, Ariz., Smith, Ga., Smith, Md., Smith, S.C., Sterling, Swanson, Thomas, Thompson, Tillman, Vardaman, Walsh, Weeks, Williams.

Nays--- Borah, Bradley, Brady, Brandegee, Bristow, Burton, Catron, Clapp, Colt, Cummins, Dillingham, duPont, Gallinger, Goff, Gronna, Jackson, Kenyon, La Follette, Lippitt, McCumber, McLean, Nelson, Oliver, Page, Penrose, Root, Sherman, Smith, Mich., Smoot, Stephenson, Sutherland, Townsend, Warren, Works.

Not voting--- Burleigh, Clark, Wyo., Culberson, Fall, Lodge, Stone, Thornton.

So the bill was passed.

Plans had been perfected to have but three conferees on the bill from either House, but because this contemplated eliminating his name Senator O'Gorman raised an objection, wherefore the Senate appointed nine conferees, six Democrats and three Republicans.  The House appointed three conferees, and the committee began its deliberations on the afternoon of December 20.  The conference report was adopted on December 23, and the bill signed by the President on the same day.

Congress immediately adjourned for a rest.  This brought to a conclusion possibly the most noted session of Congress during the Wilson administration, a session which placed on the statute books two intensely important measures, a Democratic tariff law and the Federal Reserve Act.