Show GAGES S REPLY i Secretary Answers the i Ru1utiull 1lltrued in Senate DOGUw1ENT IS S lENGTHY j Exhaustive Exposition of Management of Treasury HE COMPLIED WITH LAW Reason for Utilizing National Bonks as Depositories for Public Money t when Receipts of Government r Exceeding Expenses wn to Avoid tho Disturbance t Business which the Withdrawal of Largo Sums cr < Money from Actual Circulation to tho Treasury Vault would Inevitably Inevit-ably Cause Reason for Directing Internal Revenue Receipts into Depository I De-pository Banks at this Time is Explained Ex-plained Explanation Also Made as to Why Ono New York Bonk was ChosenNo Discrimination Washington Jan 10 Secretary Gag today sent to Congress his iepy to resolutions recently Introduced In the Senate by Mr Allen and In the House by Mr Sulxor of New York The text of his reply which Is an exhaustive exposition ex-position of the management oC that branch of the treasury finances under his administration relating to national bank depositories contains about unDO words which is supplemented by sic clal reports from department officials relative to special inquiries in the rcu olutloiWrjRcludln pyarijflplJ9f letters on the subject under consideration considera-tion In summing up his reply to the Inquiries the Secretary says HIS OBJECT First That the reason for utilizing national banks as depositories for public pub-lic moneys ns authorized by law when the receipts of the treasury were exceeding ex-ceeding its expenditures has been to avoid the disturbance to business which the withdrawal of large sums of money from active circulation to the treasury treas-ury vaults must inevitably cause The policy thus pursued by pie has been the established policy of the Government Govern-ment for many years and a departure from It under similar conditions would certainly cause disastrous results MENACE TO BUSINESS WORLD Second The reason for directing the internal revenue Receipts Into depository deposi-tory banks at this time Is that the revenues rev-enues are now largely exceeding disbursements dis-bursements from month to month and seem likely to do so far an Indefinite time This condition would be a menace men-ace to the business world If assurances were not given that this surplus would be diverted from the treasury vaults to public depositories where while secure se-cure to the Government It would bo available to the business world Third The reason for directing all the internal revenue receipts to ono depository was that it was more convenient con-venient to collect the receipts of ono office in one place and the desired dls1 irlbutlon from it than to give Instructions Instruc-tions dully to 113 collectors The moat convenient agency to effect such distribution dis-tribution is a bank which Is a member of the New York clearinghouse WHY ONE BANK WAS CHOSEN Fourth The reason for selecting the National City bank as such distributing agent was that at the time the order was Issued it was one of but two bankn which had offered bonds sufficient to cover the amount of the dully deposit and thac Its bond deposit was HGOOOQQ 1950500 of the Hanover National bank The National City bank was therefore the one most naturally chosen Of the sixtyeight banks applying for a share of the deposits the National City bank the Hanover National bank and three others applicants for over SOO000 each are the only ones out 01 uiu MIXIO constituting group 1 which have not been supplied the full amount for which they had offered security SALE OF CUSTOMHOUSE Fifth The customhouse property was old to the National City banians the highest bidder on July 3 i 1WO ln der the terms of tho sale It had the option of paying in cash all of the purchase pur-chase money at any tlmi or any part it mIght elect above 730000 which um It was absolutely obliged to pay it 1 exercised this option by choownx to 215000 leaving JWWXI yet due my No deed Will be executed until full 13 ment hiatt been made HOW MONEY WAS PAID IN The payment received was tuiJ c Into the treasury by deposit Jn the tionnl City bank It having ben established custom of truisury ollin under the counsel of their legal risers supported by decisions of Supreme court to consider money deposit lo the credit of the froaS of the United States In desIgTULi 7 posliorles AS money In Hie irsIT This deposit wo math In a < Ipos that O1 bnk for the same reason made in have iMtn deposits ice because to withdraw the urreiyt the vault of the trouHury wlnnd not needed and could not be miIlI2Qi would have required a WI th credit that wus Ixlnsr expanded iiil 1431MtP circles and to that turbnnce mercial to the natural order ot Jt ness would have foPOwid ro hiittMR quired Its payment by tIme City bank to another < lrtllfnoU would have been an 9Jj Soul discrimination without iJt tlally changing the fact NO DISCRIMIN4tTIO Finally undrr my v ° of the TriaMiry dcpartmrnt crimination In favor of one bank against another has been made Gen Tillv speaking when an Increase In aoposllory banks was desired all hay ng been Invited to qualify themselves or receiving such money and having fen equally and equitably considered I i their respective relations to the rcusury REVIEWS JUS COURSE Before proceeding to respond to the resolution specifically Secretary Gago his whole i Sixes a general review of louiso in the branch of public finances concerned with national bank depositories deposi-tories as follows I He notes the provisions of the statutes stat-utes which make all national banking associations designated for that pur pot by the Secretary of tho Treasury depositories of public money except recclpta from customs under such regulations reg-ulations as may be prescribed by the Secretary REFUNDING OPERATIONS That statute became a law June 3 IStJl and its first marked recognition I was In the refunding operations of 1871 when Secretary Sherman thought It norcssary to place with national bank depositories sums of money which reached as high as 2Ji51IG15 Secretary Secre-tary Fairchild In iSSTSS during a period pe-riod of abnormal receipts of revenue Increased the number of depository banks and allowed such banks to accumulate ac-cumulate balances reaching C1516000 AMOUNT HELD BY DEPOSITORIES On March 1 1S97 there were 159 national na-tional bank depositories holding a total I of S1G19S110 With few exceptions these institutions received deposits from internal revenue collectors and emitted to the subtreasuries any surplus sur-plus over the amount of the C per cent Dalnncc which they were permitted to apld The amount of public deposits remained about the same during the first six months of this administration In November began those large payments pay-ments which resulted from the highly successful settlement of the Union Pacific Pa-cific railroad Indebtedness payments aggregating 5S148223 It was thought expedient as a Dart of this enormous transaction to utilize for a few days the services of depository banks with the result that at the end of December 3S07 such deposits had increased to 91 382717 The reason for this action was to avoid the injuridus effect on trade and Industry of a too sudden withdrawal with-drawal from DHblic uses to the vaults of the treasury of so large a sum as SfS000000 By tho end of May 1S9S the e public deposits had been reduced to 5283a359 FUND FOR WAR PURPOSES Soon after this the Government was confronted with the necessity of raising rais-ing Immediately a large fund for war purposes and acting under the authority author-ity of the war revenue act the people were called upon to subscribe to an Issue of 5200000000 of bonds 4 OFFERED TO BUY AT PAR On the day the books were opened thr National City bank of New York siiul its associates offered to take at par and accrued interest any portion I of the bonds that mlirht not be sub Hcribed for by the public and on the same day J P Morgan Co and their associates numbering fifteen of the greatest financial houses of the country coun-try also subscribed to the entire Issue of 200000000 or any part that might aiot be subscribed for by the general public PROUD OF inS FINANCIERING It will be readily recognized that the absorption of 200000000 within the space of a few weeks could not fail to disturb most seriously the general business busi-ness of the country The Secretary of the Treasury feels some measure of just pride that the financing1 of the war loan of 1SOS was accomplished without the slightest interruption to that revival of commerce and the Industries of the country which has made the present a period of unexampled prosperity LOCATION OF DEPOSITORIES By the end of 189 the number of national bank depositories had been increased In-creased to 21C located in fortythree States and Territories and holding 94 S60000 The New York banks were able to control more bonds and qualify themselves Ju larger proportions than the banks In the interior cities I With a view to securing a more equitable distribution of the funds the Secretary early in 1SS9 designated forty or fifty additional depositories and while thus Increasing the depositories deposi-tories outside of New York city he at thc same time drew down the balances in the New York city banks REVIVAL OF COMMERCE With the beginning of the present fiscal year the treasury was feeling the influence of the revival of commerce For the first six months ending with December 31139 the excess of receipts over expenditures aggregated 21026 opo This absorption of money from an active use Into the treasury where It oculcl serve no present useful purpose was a source of apprehension to the public and of anxiety to the department depart-ment The situation was Inlensllled by the fact that the fall movement oi currency to the Interior for the movement move-ment of crops operated to reduce the cash reserves at all commercial centers cen-ters The Secretary was indisposed to increase deposits in public depositories and in order to avoid that he offered to anticipate Interest on the public debt and later dffered to buy 25000000 of bonds The movement toward stringency strin-gency In the money market had as tfumcu too great a momentum to bo averted by such means PANIC OCCURS December ISth a financial panic occurred oc-curred Prices of Investment securities fell ruinously Interest rates rose to 1 fabulous rates and a general constriction constric-tion of the money market was apparent appa-rent While this state of affairs found its most violent expression in the security se-curity market It excited a state of anxiety and alarm throughout the Industrial In-dustrial and commercial communities The situation waa believed to be so grave as to Justify the utmost interference inter-ference The receipts of the treasury for December it was perceived would exceed the expenditures by 7000000 or 3000000 Under these conditions a peculiar responsibility was thrown upon up-on the treasury STATUTES CONFER AUTHORITY The statutes conferred authority to place public money except customs In designated depositories and gave power to relieve the situation without possl lile perjudice to the treasurys needs 3t was therefore announced December 13th that the Secretary would deposit internal revenue collections with depository de-pository banks to the amount of 30 000000 or 10000000 should so much be applied for MAKES DIRECT ANSWER r From this point on the Secretary makes direct answer to tho Congressional Congres-sional Inquiry Ills principle of action has been to bo manage the receipts and expenditures as to produce the least disturbance In that part of the money supply which must be at the service of commercial and industrial use Since June 1 1S98 the receipts of the treasury have amounted to eleven hundred hun-dred millions By the aid of depositories deposi-tories the amount In the treasury at the close of any quarterly period during dur-ing the time never rose more than 20 DOOOOO above the average for the xvhole period Tablctt presented show that substantial equilibrium was maintained at all times between the relation to the rupply of money In the treasury and the supply In commercial uses GIVES SOME HISTORY Taking up the history of the Government Govern-ment connection with the Hanover National Na-tional bank and the National city bank specifically Inquired Into by the rcoiulUn tho Secretary shows that the National City bank was appointed a depository July 21 i9i it was used ris a depository for internal revenue collections until the bond sale in 1895 when the then Secretary of the Tivaus nry deemed A advisable to use that Lauk together with four others as depositories de-positories and about 23000000 was deposited de-posited with those buTiks When JLH i If I other issue of bonds was made In February Feb-ruary 1S96 tile then Secretary ot the Treasury again used the National City bank and the Hanover National bunk as depositories each for nearly 10 000000 UN1QN PACIFIC SETTLEMENT Lute in 189T more than 58000000 was to be paid into the treasury as the result re-sult of the Union Pacific settlement To avoid the transfer of so huge a sum I from public uses to the treasury I vaults the New York banks were Invited L In-vited to qualify as temporary depositories deposi-tories Eight banks so qualified the National City for 21000000 and others for smaller amount Tluw deposits were gradually Jthdrawn by transfer to the subtreasury until the small balances were finally discharged DISPOSING OF WAR LOAN When the 200000000 xvar loan was made It was seen that the paying into thij treasury of such a sum could not be otherwise than a dangerous thing for the public interests and a usuless thing to the Government finances The treasury announced to the national banks Its desire to place temporarily on deposit a portion of this amount and all banks without regard to slc I or location were invited to qualify an temporary depositories All applications applica-tions were accepted None was refused re-fused The National City bank deposited de-posited Si 1000000 of bonds and the balances bal-ances paid on this account never exceed ex-ceed 11000000 The Hanover National I bank deposited 11000000 of bonds and reeelxed a balance never larger than 11000000 MONEY FROM SALE CUSTOMHOUSE CUSTOM-HOUSE The connection of the National City bank with the sale of the old customhouse custom-house property in New York is described de-scribed In a memorandum prepared by the supervising architects office In that connection however the Secretary calls attention to the allegation that he has violated the law by depositing the proceeds In a bank depository xvhen the act decreed that the proceeds should be deposited In the United State treasury Every United Status depository depos-itory bank IM i within the meaning of section 153 of the Revised Statutes apart a-part of tho United States treasury The moneys which may by deposited in such p bank include all classes of receipts except customs and wlipn such muiuys are deposited in I such a l unk to the credit of the Treasurer of the United Slates they are in the treasuix just as much is if they xveie physically on deposit in the treasury at Washington LEGALITY OF ACTION The Secretary cIted decisions of the Supreme court xvhlch established beyond be-yond question the legality of his action The Comptroller of the Treasury whose decision Is binding upon the executive branch ot the Government holds that nmney Is paid into the treasury of the United Slates by being deposited ith the Treasurer of the United States hereIn here-In Washington or to his credit wIth an assistant treasurer or In a designated depository that has been an unlnter mpted and universal rule goveinlng the accounting officers of the Government for many years BEEN CUSTOM FOR YEARS etlerj from men of thirty or forty I r years service in the treasury are quoted showing that money In a depository de-pository bank is as much depotHod in the treasury of time United Slates as when deposited In any subtieasury The customs property was sold July 3 IStia to the National City bank for 3263000 which was 190000 larger than that tendered by the next highest bid der August 2Slh certificates of deposit were forwarded to the department covering cov-ering 3210000 credit as proceeds of the customhouse property in the general account of the Treasurer with the National Na-tional City bank a depository bank The Treasurer duly accepted the fund as a deposit in the treasury It was subject to his Jurisdiction and order Subsequently the National City bank was ordered by the Treasurer to trans for to the subtreasury and other national na-tional bank depositories spurns aggregating aggre-gating 3SCO000 No rent has been paid to the National Pity bank for the Governments Gov-ernments occupancy for the reason that such payment awaits appropria Ion by Congress The correspondence between the de partment and the National City bank irt quoted showing the refusal of tho department to give the National City bank Its full balance of 400000 except concurrently xvlth all other banks In the first group the balances of the Na tional City bank and the Hanover Na tional bank being built up pro rata xvlth all other banks |