Page:EB1922 - Volume 30.djvu/445

Rh lacking the British Empire is in central banks, it certainly does not lack branch banks for the use of its nationals; what is needed is the coördination of the several systems. (W. F. S.)

II. . Subsequently to the panic of 1907 and the recovery which followed, the banking system of the United States entered upon a period of prosperity and success which continued practically unbroken to the opening of the World War. The sudden outbreak of that war, 1914, caused a temporary shock not only to banking but to general business. This uncertainty, however, lasted but a few months, and was succeeded by a restoration of confidence which continued with expanding business and activity in all branches of banking down to the autumn of the year 1920. In the autumn of 1920 the development of post-war reaction in business and a violent shrinkage of prices brought severe pressure to bear upon all the elements of the banking system of the United States, but this was not sufficient to cause any dangerous shock. The period in question was one of unusual importance in American banking, not only because of the organization of the Federal Reserve system in which all national banks were compelled by law to assume membership, but also because of the fact that the strongest state banks and trust companies voluntarily entered the system during the first three years after its formation, with correspondingly broad effects upon financial organization, while the effects of the war and the expansion of American industry which accompanied the struggle greatly enlarged the activity of American banking and added to its profits.

Pre-War Period.—The years 1908-13 were characterized by a steady and consistent growth of business. In the following table, which shows the advance in the number of organized banks as well as their chief assets and liabilities, the increase of operations may be noted during the five years in question, and may be compared with the advance during the war period:—

In order to show the relative position occupied by the national banks, the following tabular comparison, relating to national institutions only, is presented. It will be understood that while the state banks and trust companies included in their number the bulk of the investment institutions of the nation, the commercial banking assets were predominantly held by the national banks.

The period 1908-13 was not, however, notable for any far-reaching changes in method or organization; provisions which had been enacted in the Aldrich-Vreeland law of May 30 1908 for the formation of national currency associations (see ) remaining practically a dead letter. There being no immediate or urgent

necessity for the creation of national currency associations, since no disturbance in business conditions seemed to be imminent, the national banks made no effort to form them.

During the years in question the National Monetary Commission, appointed in accordance with the provisions of the Aldrich-Vreeland law, was prosecuting its investigations into existing conditions, but these investigations were academic up to 1912, while even in the latter year the bill for banking reorganization proposed by the National Monetary Commission (the “Aldrich Bill”) had small chance of success so that at no time prior to 1913 was there a serious prospect of fundamental change in legislation. The adoption of the Federal Reserve Act in the latter year greatly altered the conditions under which the national banking system, and indeed the whole banking system of the United States, was operating, but it did not produce any direct or immediate effect upon the methods or position of the banks themselves until a much later date. Indeed, the Federal Reserve Act itself did not come into practical operation until nearly a year subsequently to its passage, the reserve banks being organized in Nov. 1914. During the pre-war years, however, the problems of the national banking system which had already been recognized had been growing more and