The Representative on Special Mission in Cuba ( Crowder ) to the Secretary of State


Dear Mr. Secretary: On January 1, 1921, I sailed on the U.S.S. Minnesota from Philadelphia for Havana, Cuba, to carry out your instructions specifically set forth in the following letter dated December 31, 1920:

[Here follows the letter of instructions to General Crowder printed in Foreign Relations, 1920, volume II, page 41.]


I arrived in Havana harbor the morning of January 6, and was immediately called upon by the American Minister and the Captain of the Port, followed by the Chief of Staff of the Cuban Navy and the Secretary of State of Cuba. On the afternoon of the day of my arrival, I called upon and conferred at length with the President of the Republic and the following day made a call upon the Secretary of State.

The object of my mission, under the foregoing instructions, was of a twofold nature, involving as it did the rectification of the then existing electoral and financial situation in Cuba. As a final report may now be rendered upon the latter, the legislative and executive program of emergency relief measures therefor having been approved and put in effect, I herewith respectfully submit my final report on matters financial connected with my mission and will hereafter, at an opportune time, make final report on matters electoral connected therewith.

Matters Financial

1. panic of october 9, 1920

The inevitable envelopment of Cuba in a world-wide situation attended by a drastic decline in commodity and security values during the latter half of 1920 was featured by a fall in the price of sugar, Cuba’s chief agricultural product, from a long sustained and highly abnormal level to pre-war figures, which at length occasioned the local financial panic of October 9, 1920.

2. executive effort to arrest panic

For such a crisis Cuban business was wholly unprepared, owing primarily to the lack of anything approaching a modern system of banking legislation in this country. As this panic took the usual [Page 776] form of runs on banking institutions by both savings and current account depositors to such extent as to sweep away public confidence in the stability of banks in Cuba and to temporarily exhaust cash reserves available for payment of deposits, the President of the Republic, at the urgent instance of representatives of banking interests and on the advice of the Council of Secretaries of Departments issued on October 10, 1920, a decree, of which the following is a translation, declaring a moratorium throughout Cuba to terminate on November 30, 1920, but which by subsequent decrees issued on November 27 and December 31, 1920, was respectively extended until December 31, 1920, and January 31, 1921:

[Here follows a translation of the moratorium decree printed in Foreign Relations, 1920, volume II, page 44.]

While the banking and other commercial interests of Cuba were for the time being secure under the credit respite afforded by the moratorium, the President of the Republic called upon our State Department to engage for Cuba the services of an American financial expert who would be willing to come here and make a thorough study of contributing causes of the emergency imperiling Cuban commerce and industry and undertake to prepare an adequate and practicable plan of immediate relief therefrom. For such special service the State Department enlisted the efforts of Arthur [Albert] Rathbone, who duly proceeded to Cuba, and on December 17, 1920, submitted a report86 to the President of the Republic, copy whereof is on file in the State Department, the main feature of which, from the viewpoint of immediate remedial effect, is hereinafter described.

3. proposed emergency legislative relief

In the immediate foreground of contributory causes of the local panic of October 9, 1920, were certain conditions for which no legislative remedy was possible, and certain others, injurious to and incompatible with substantial commercial and industrial prosperity, the righting of which by the natural operation of economic laws was an end to be desired regardless of the amount of business depression or dislocation which the process might involve. Accordingly, emergency legislative relief measures were to be applied with the utmost of caution and discrimination. There had been an orgy of speculation and gambling, incited by the unprecedented war prices for sugars. Improvident credits had been extended by the banks wherefrom inevitable losses were due to ensue. No governmental legerdemain could restore to the banks such of their assets as had been absorbed, directly or indirectly, in sugar investments [Page 777] at inflated prices, the like of which would not again obtain at any time in the visible future. As in any other disastrous business venture, banking institutions had, sooner or later, to face their losses resulting from the decline to normal of the erstwhile inflated sugar market value, and such of them as were insolvent be liquidated. And there had been an immense wartime stimulation of production. Old plantations had been extended and new plantations established on such a scale as to cause the local sugar output to be multiplied since 1914. Large investments had been made in this field on the expectation that the prices of sugar would remain at a high level. That agricultural expansion undertaken on so enormous a scale at such a time should yield disastrous losses to planters, and so aggravate the local business depression at a critical period in Cuban readjustment to the world-wide economic situation, was a lamentable but none the less unavoidable consequence of the wide-spread overconfidence of which local sugar growers were obsessed. Such losses had to be faced and endured without any legislative putting off of the evil day of reckoning.

3 (a). proposed remedies contrasted

Numerically stated, three remedies had been proposed prior to my arrival in Cuba, namely, the Rathbone scheme, embodied in a report, hereinbefore referred to, containing a series of recommendations; the Tarafa measure, embodied in a proposed law; and the Torriente project, later embodied in a proposed law. Analytically considered for practical purposes, the Rathbone scheme and the Tarafa measure may be jointly dealt with, as the two, in their immediate remedial application to the then existing banking crisis were, in fundament, similar in design and purpose, i.e., a revolving loan fund to be derived from a Government bond issue and to be administered by a specially constituted commission. The Torriente measure, which, in effect, gradually removed the stay on debt collection imposed by the moratorium decree with a view to the interim partial movement of the present sugar crop and the debt liquidation thereby facilitated, excluded the idea of a public loan on the theory that to dispense with the same would necessitate the immediate placing on the market of the unsold remnant of the preceding crop to be followed by the equally compulsory marketing of current year production at prevailing market prices. With such a salutary objective at least, fault could not be found. Nor could a judicious appraisement of the Rathbone–Tarafa measure fail to note that a quite probable consequence of an extrinsic credit addition of from fifty to one hundred million dollars to then existing and prospective credit facilities in Cuba, made available to banks and sugar producers, [Page 778] would be a damaging tendency to withhold sugar from the market in ill-conceived anticipation of an increase in prices; whereas, without this addition to credit facilities, the crop would of necessity be marketed as produced. Having in mind the estimated yield for the present sugar year, it may be said with reason of the then prevalent crisis that there was no dearth, existent or prospective, of either money or resources in Cuba, but there was a veritable dearth of that confidence in the banking and business situation which is the touchstone of credit and prerequisite to commercial and industrial stability. To restore that lost confidence, to reconstitute it the channels through which credit would flow in the course of normal business from the sources of supply to points of utilization in commercial and industrial needs was the immediate task ahead on the speedy accomplishment of which depended the prevention of a breakdown of national commerce and industry and sequence of measureless complications. The executive moratorium decreed on October 10, 1920, it should be remarked, was due to expire on January 31, 1921, and its prolongation by further executive action was not to be considered, in view of conditions within and without Cuba. On this point public opinion was clamorous and undivided. The need for legislative remedial action was therefore supremely exigent. These considerations, as well as the daily developing situation during the month of January and the fact that public opinion in Cuba had pronounced adverse judgement on the Rathbone–Tarafa measure and in favor of the fundaments of the Torriente project, led me to conclude that the Rathbone–Tarafa measure, in its immediate remedial application to the existing banking crisis and general situation (consisting of a revolving loan fund of fifty or more million dollars to be derived, as above stated, from a government bond issue and to be administered by a specially constituted commission), was quite impotent to contribute to the solution of the Cuban banking and business crisis and should be discarded from consideration of governmental remedial measures therefor.

3 (b).gradual removal of the stay on debt-collection, in respect of obligations antedating october 10, 1920, imposed by executive decree of that date, ordained in act of January 27, 1921, known as torriente law no. i

The Torriente project, providing for the gradual removal of the stay on debt-collection, in respect of obligations antedating October 10, 1920, imposed by executive decree of that date, was designed to afford industrial, mercantile and banking interests reasonable opportunity to liquidate, or make necessary credit utilization of commercial assets which had become temporarily unmarketable or unserviceable due to the acute but transitory demoralization prevalent in local business [Page 779] and banking circles. Subjecting this proposed law, originally drafted by Senator Cosme de la Torriente at the instance of a joint committee of both branches of the Cuban Congress, to the test of responsiveness to the immediate needs of the situation, I was most favorably impressed with the possibilities of this measure as a means of restoring that confidence essential to normal credit and business relations. The composite judgment of financial experts representing the banking interests affected by its provisions approved of its essentials and public opinion regarded it with distinct favor. After satisfying myself of the merits of the project and of the need of incorporation therein of certain safeguards in the public interests, I made cabled report and recommendation thereon to the State Department containing my conclusions evolved from a series of local conferences and study of the subject, and upon advice of the Department’s approval of the same,87 I submitted my revised draft of the measure to the President of the Republic with explanation of the reasons for the proposed changes, in order that he might in turn inform the proper committees of Congress thereof and of the views of my Government in the premises. The result was the passage by Congress of the measure in the form in which revised by me, which was approved by the President of the Republic on January 27, 1921.

The law, known as Torriente Law No. 1, in its fundaments, provides that rights of action arising out of bills of exchange, notes, drafts and other Code of Commerce credit instruments antedating the inception of the executive moratorium of October 10, 1920, shall not be exercised until after a period of one hundred and five days from the taking effect of the law (i.e., January 27, 1921) if the debtor make interim part payments thereon as follows: fifteen per cent within fifteen days; twenty-five per cent within forty-five days; twenty-five per cent within seventy-five days; and thirty-five per cent within one hundred and five days, default in any such part payment serving to make at once available to the creditor the remedies of general procedural law (sugar production obligations, however, not to be subject to such interim part payment restrictions). In respect of bank deposits the following scale of interim part payments to depositors is specially provided for, with like consequence in event of default therein: fifteen per cent within fifteen days; fifteen per cent within forty-five days; twenty per cent within seventy-five days; twenty-five per cent within one hundred and five days; and twenty-five per cent within one hundred and thirty-five days. Neither scale of such interim part payments became, however, automatically applicable in the classes of obligations above described, but only on the duly presented application to that effect of the [Page 780] debtor, which in the case of a banking institution was to be presented by the debtor to the Secretary of the Treasury, whereupon the former became subject to supervision of the latter acting through duly authorized representatives, and in the case of other debtors than banking institutions was to be presented to either a Municipal or First Instance Judge, as the case might be. As to mortgage debts, whether of real or personal property, and notarial instrument debts, antedating the inception of the executive moratorium, the first mentioned interim part payment scale is made applicable whenever the debtor is able to substantiate in a very simple, specially provided judicial proceeding that his default would not have occurred but for the payment stay on bank deposits contained in said moratorium or In this law. Public funds on deposit with banking institutions are by specific provision of the law not made subject thereto in any manner.

Local banking experts were agreed on the fact that the law was sufficiently liberal to permit any temporarily embarrassed banking institution which was in reality solvent to liquidate or make credit utilization of assets and so survive the effects of the business depression everywhere prevalent, and at the same time sufficiently drastic to make it impossible for any mismanaged, actually insolvent bank longer to impose upon or conceal its real condition from the public. Every bank of this latter class failing to make any of aforesaid interim part payments, could be forced by any outstanding creditor to suspend and liquidate.

To recapitulate: Sugar deflation, made worse by speculation, made possible a temporary exhaustion of credit in Cuba which had to be relieved at once to avert immeasurable disaster. Torriente Law No. 1 literally created and made available a supply of credit which sufficiently eased the situation to enable credit conditions to improve and recover from a state of collapse, by natural process.

3 (c). special law of suspension of payments and liquidation of banking institutions, approved january 31, 1921, known as torriente law no. 2

Torriente Law No. 1 provided a systematic and reliable test, in the absence of banking legislation, for determining what banking institutions doing business in Cuba were insolvent and the extent of such insolvency; it did not undertake to provide a means of disposing of insolvent banks. Torriente Law No. 2 was a companion piece of emergency legislation, designed as the complement of the first mentioned law and to have an operation specially adjusted thereto. The wasteful delays and excessive expense necessarily involved in liquidation of an insolvent banking institution by established [Page 781] judicial proceedings under the Code of Commerce and related remedial law, in a word, the recognized inefficiency of the judicial methods prescribed by the law of the land made resort to the courts, in the exigencies of the emergency, quite impracticable. The upshot of the situation was the measure known as Torriente Law No. 2, which provides a relatively simple, inexpensive, speedy, administrative, and withal, just means of insolvent bank management with a view to reorganization or liquidation, as the case may be, and to the maximum of interim conservation of assets for creditors and stockholders, made available alike to those having charge of the institution’s affairs and to creditors, during the temporary operation of the law. The mechanism of the Act consists of a superior body of three members, the Secretary of the Treasury, ex-officio, and two other persons of known expertness in banking matters, to be appointed by the President and not to be subject to removal except for a criminal offense or other grave cause, after hearing, and an inferior body, separately constituted for each bank under administration, known as the Liquidation Board, composed of five members, removable for cause at any time in the judgment of the Commission, two of whom are to be appointed by it, one by the stockholders, one by the depositors, and one by the other creditors. Each member of the Commission is to receive a per diem compensation payable (together with the compensation, which the Commission is to fix, of such professional, clerical, and other personnel as in its judgment is necessary) from the public funds; while the per diem compensation, to be fixed by the Commission, of the Board members is payable from the funds of the bank under administration as part of the expenses thereof. The Commission must administer the affairs of each insolvent bank under its control with a view to either restoration to a solvent condition, where practicable, or final liquidation thereof, and to that end is invested with powers analogous to the combined powers of a court and receiver, which under the scheme of the Act the Commission is required to exercise, in all that pertains to bank administration or liquidation, through the subordinate Liquidation Board, above described, which latter functions at all times under its exclusive direction, supervision, and control. From the action and determination of the Liquidation Board as controlled by the Commission, an appeal lies, in matters where substantial rights are thereby concluded, directly to the Civil Chamber of the Supreme Court. Throughout the operation of the law, this is the only point of contact with the judicial branch of the Government, and is believed to be the minimum necessary to its validity. The procedure whereby the jurisdiction of the Commission is to be invoked and exercised and insolvent banks administered [Page 782] under its authority is prescribed in considerable detail in the law and, in addition, the Commission, with the approval of the President of the Republic, is authorized to make regulations for its proper execution having the force and effect of the provisions of the Act itself, that is, displacing cognate provisions of law inconsistent therewith.

The Act was drafted, revised, and enacted under the same circumstances as Torriente Law No. 1; my redraft thereof, which was adopted without substantial alteration, having been submitted after due consultation with the State Department.88 All that has to do with the Liquidation Commission, its powers and duties and mode of exercise thereof, as well as much that relates to the scope and character of the law had to be injected by me in the original draft of the measure in order to make the same safe, workable, and efficacious.

In the circumstances, and pursuant to an understanding with the State Department on the point, no special provision for liquidation of insolvent merchants was considered advisable, in view of the provisions of the Code of Commerce as amended by the Law of Suspension of Payments of June 24, 1911, with which local business interests were familiar and which was generally regarded as reasonably adequate.

3 (d). operation of torriente laws nos. 1 and 2

Only eight banking institutions in Cuba made application for the deferred payment privileges extended by Torriente Law No. 1, two of which are located in the Province of Pinar del Rio, one in Santa Clara, and five in the city of Habana. Of these five, namely, the National Bank of Cuba, the Spanish Bank, the International Bank of Cuba, the Liberty Bank, and the Banco de Propietarios Industriales y Arrendatarios, the two first mentioned institutions have for many years played a most important part in the financial and industrial activities of Cuba. Both are entirely local institutions, with deposits in each case amounting to many millions of dollars. The former of the two, the National Bank of Cuba, is also a Government depositary and disbursing agent, under special contract, and now owes the Cuban Government approximately twenty millions of dollars. It has survived the test of the initial payment to depositors under Torriente Law No. 1, as interpreted by the Secretary of the Treasury in respect of the amount of same necessary to satisfy the requirement of the Act, and by meeting subsequent interim part payments or making satisfactory credit arrangements with depositors (in which effort it is now reported to be engaged) may succeed [Page 783] with the return of confidence in the general situation, in escaping the administrative receivership established by Torriente Law No. 2. At the last meeting of the Board of Directors the resignation of the President, William A. Merchant, was accepted and Porfirio Franca, Manager of the local branch of the National City Bank of New York (a Cuban who stands high in the estimation of all business and banking elements here) was elected in his stead and has signified his acceptance of the office. It is not believed that this bank will have to undergo administration at the hands of the Liquidation Commission provided for in Torriente Law No. 2.

Immediately after the enactment of Torriente Law No. 2, the Spanish Bank initiated most strenuous efforts through the public press, by circularization of depositors and otherwise to reach an agreement with depositors whereunder the bank was to be released from all obligation on savings or current account deposits as such, and in consideration of such release each depositor assenting thereto was to receive of the bank its promissory obligation to pay a sum equivalent to the unpaid balance on deposit whensoever its financial condition permitted, such obligation taking the form of so-called “Certificates of Administration” of the value of ten dollars, each, bearing interest, payable semi-annually, at the rate of six per cent per annum, and payable to bearer, obviously intended as a sort of asset currency, to be issued without let or hindrance of the law and to be retired from circulation when the need therefor no longer existed. To enlighten depositors as to their rights and remedies under Torriente Law No. 2, President Menocal gave out to the press, as his own, a statement prepared by me setting forth the merits of that law and the possible dangers to creditors’ interests involved in any credit extension or other agreements entered into by depositors or other creditors with officials of insolvent banks as a means of keeping the same out of the administrative receivership provided for by Torriente Law No. 2. Explanatory of the apparent success of this time certificate project of the Spanish Bank, the Evening News of Havana, of February 14, 1921, contained the following editorial comment:

“The creditors of the Spanish Bank, for the most part Spanish merchants, Spanish Clubs, and Spanish residents of Cuba, have made the matter of the Spanish Bank a question of national pride, in which as Spaniards they will not permit their greatest financial institution to become engulfed in a financial crisis as long as they have the means to support the bank, which they have united in a plan of time certificates.

“With this plan being carried out the Spanish Bank will soon be doing business, and it is not likely to lose many of its clients, and those who have refused to take the certificates may be paid off in full, although the confidence being restored will bring most of these back to the Bank again soon.”

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The International Bank of Cuba is likewise engaged in a campaign to secure various sorts of credit extensions from depositors and other creditors, but it remains to be seen whether this institution and four others of minor importance, namely, the Liberty Bank, of Havana, the Banco de Propietarios Industrials y Arrendatarios, of Havana, the Banco Patricio Aizcorbe, of Pinar del Rio, and Saiz Hermanos y Compañia, of Pinar del Rio, which have taken advantage of the part payment privileges of Torriente Law No. 1, will be able to satisfy creditors to such extent as to keep out of the administrative receivership wherewith Torriente Law No. 2, has to do. That the majority of these will be unable to do so is quite probable. The Santa Clara institution above referred to, denominated the Banco Federal de Cuba, of minor importance, is now being administered under Torriente Law No. 2.

The Liquidation Commission, as now organized under Torriente Law No. 2, consists of Colonel M. Irribarren, Secretary of the Treasury, President ex-ofjtcio thereof, Porfirio Franca, Cuban, bank official possessing full confidence of all business interests in Cuba, and Oscar Wells, American banking expert, President of the First National Bank of Birmingham, Alabama, member of the Fiscal Advisory Council of the Federal Reserve Board, and director of a Federal Reserve Bank, unanimously recommended to the President of Cuba by the Federal Reserve Board. President Menocal even before the enactment of the law had agreed in a letter addressed to me to appoint a banking expert on the Liquidation Commission to be named by the Federal Reserve Board. The understanding had with President Menocal also contemplates that Oscar Wells shall formulate for the Banking Commission charged under Torriente Law No. 3, hereinafter noticed, with the preparation of a permanent banking law for the Republic, a proposed measure suited to Cuban financial needs.

In respect of the condition of the merchant class, as revealed by the operation of Torriente Law No. 1, I may state that the optimistic predictions made as a result of local conferences and investigations in my cablegrams to the State Department have been verified by the outcome thereunder, only an inconsiderable percentage of the merchants in Cuba having made application for the deferred payment privileges extended by that law, and no concern of magnitude, I am reliably informed, having found it necessary to do so. The inconsiderable extent to which banks and merchants in Cuba have availed themselves of the deferred payment privileges of Torriente Law No. 1, demonstrates unquestionably the fact that business in Cuba has emerged from the crucial period of the depression both solvent and self-sustaining. It may be affirmed with no less confidence that eventual complete recovery therefrom is in sight.

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4. torriente law no. 3

The recent banking crisis provoked a general demand for a modern system of banking legislation in Cuba which would safeguard stockholders, depositors and creditors against losses occurring through maladministration of bank affairs and against credit collapses, incident to prolonged periods of business depression, preventible in large measure by legislation facilitating in times of stress the maximum credit utilization of bank assets. In response to this demand, Torriente Law No. 3, approved January 31, 1921, created a National Commission to prepare and to submit to the President a system of banking legislation for the Republic which would suffice the needs of business and industry therein. The law provided that the Commission should consist of the Secretary of the Treasury, two senators, two representatives and five other persons, respectively representing agriculture, commerce, industry, banking business, and property holders; all members (except the first mentioned whose status is ex-officio) to be appointed by the President of the Republic. The chief expert adviser of this Commission, upon whom will devolve the major part of the work of devising and drafting the proposed scheme of legislation, according to the understanding had between President Menocal and the State Department, represented by myself, will be the American banking expert aforementioned, Oscar Wells of Birmingham, Alabama, who has just entered upon the discharge of his duties.

5. executive effort to stabilize sugar values

The depression of the price of sugar in world markets to a point which entirely removed the element of profit from the Cuban sugar industry as a whole and so threatened its existence whereon Cuban commerce so largely depends, made necessary some governmental measure to stabilize sugar values in the permanent interests of both producer and consumer. The means to this end seemed to be sufficiently at hand in the subsisting war powers of the Cuban President, which, after consultation with the State Department and pursuant to understanding had on the subject between the United States and Cuba, was [were] invoked in the executive decree of February 11, 1921,89 copy whereof is on file in the State Department, creating the Sugar Finance Commission as an emergency instrument to market the Cuban sugar supply then in sight, in the United States and other countries at a stable price level which would enable [Page 786] that supply to continue by allowing a reasonable margin of profit to the producer, and nothing more. In the matter of sugar production and consumption, the United States is no less dependent on Cuba than Cuba is on the United States, for as is well known, our total of sugar production and importation from other countries than Cuba constitutes only a relatively small part of the domestic consumption demand supplied by the latter.

. . . . . . . . . . . . . .

To guard against discrimination in favor of any particular class or interest concerned in the production or marketing of the sugar crop a combination of elements was effected in the prescribed personnel of the Sugar Finance Commission consisting of (a) larger producers, represented by Manuel Rionda and Robert Hawley, (b) smaller producers, represented by José Miguel Taraf a and Manuel Aspuru, (c) banking interests, represented by Porfirio Franca and Frank J. Beatty, and (d) the public in general, represented by the Secretary of Agriculture, Commerce and Labor, upon which head of department the final provision of the decree imposed the duty to see to the proper execution of the same, made effective upon the duly expressed assent thereto on the part of mill owners whose aggregate output amounted to at least seventy-five per centum of the sugar yield of the crop of 1919–20. This assent was duly announced on the eleventh day after the promulgation of the decree, thus satisfying the condition precedent to its taking effect. Cuban raws are now selling in the New York market at four and three-quarters cents, cost and freight, or 4.65 f.o.b., the Commission having recently sold one hundred thousand tons at that figure, sixty-five thousand of the same destined for the United States and the balance for Canada and Europe. So that the upward movement of the price of Cuban raw sugar during the past few weeks, due in part, no doubt, to the creation of the Commission, amounts to one and one-quarter cents per pound, though it is authoritatively stated that the price of 4.75, cost and freight, is not yet equal to the cost of production. At all events, the interests of the American consumer are sufficiently safeguarded by the reserved right of the United States (a condition of its assent to the expedient devised in the aforesaid decree) to object to the Sugar Finance Commission at any time and by the assurance of President Menocal that the Commission would be dissolved whenever the price of Cuban Sugar should exceed five and one-half cents per pound—a by no means unreasonable figure. It is believed that the operations of the Commission to the date hereof have had a wholly salutary effect on the permanent best interests of both producer and consumer which in last economic analysis are not discordant.

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6. retrospect and prospect

Looking backward to the date of Torriente Law No. 1 over the succession of events, herein related, which mark that stressful period in Cuban business and industry, it is conclusively evident that, with the cessation of the recent abnormal demand for the liquidation of credits, especially of deposit credits, with only five or six banks, all of minor importance, in such a disabled condition as to make reasonably probable eventual administrative receivership under Torriente Law No. 2, and but an inconsiderable percentage of merchants—and none of magnitude—under the necessity of claiming for themselves the credit extension allowed by Torriente Law No. 1, and with the subsidence of alarm following the revival of sugar values, the general business and industrial situation in the wake of the panic is sound at bottom, and that no permanent injury has been done Cuban interests. Looking into the visible future, the outstanding need of banking reform to prevent the recurrence of destructive panics overshadows all else in the vista of Cuban commerce and industry. Cuba has a number of heterogeneous banking institutions but no banking system; no adequate safeguards against either maladministration from within such institutions, or credit collapses from without in times of economic stress. To devise a scheme of banking reform which will leave the identity of these institutions unimpaired, and which shall contain the necessary safeguards and benefits is the problem presented by Cuban conditions whose intricacy might well tax the ability and ingenuity of our most experienced financiers. Cuba is fortunate in having one of them, the unanimous choice of the Federal Reserve Board, as expert adviser of her National Banking Commission charged under Torriente Law No. 3 with the preparation of an adequate banking law.

The readily discernible fundamental requirements of the situation, wherefor any permanent scheme of banking reform in Cuba must provide, are (a) a system of bank inspection equal in thoroughness and efficiency to that of national banks in the United States, (b) centralization of bank reserves, (c) adequate re-discounting facilities, and (d) a sufficiently elastic credit supply to satisfy the various needs of Cuban business and industry. The triple objective represented by requirements (b), (c) and (d) might doubtless be accomplished in a diversity of ways, but that which most commends itself to my judgment will, in briefest outline, now be stated. The plan contemplates the establishment of a central bank, in Havana, the powers and functions of which should be, inter alia:

  • To serve as a depository and distributing agent of the Cuban Government, to the exclusion of any other banking institution.
  • To re-discount commercial paper for banking institutions.
  • To hold and administer bank reserves, the maintenance of which shall be prescribed by law for all banks doing business in Cuba.
  • To issue notes against commercial assets and fortified by an adequate gold reserve.
  • To accept deposits only from the government of Cuba, or other governments, and banking institutions.
  • To buy and sell cable transfers, bankers’ acceptances, bills of exchange and other commercial paper and securities, including those of the Cuban Government, or any political division thereof.
  • To make loans adequately secured, to banking institutions only, for limited periods, including mortgage loans on real and personal property, if they may be brought to meet the requirements of liquidness that the assets of such a bank must possess.

If the Government of the United States can find a way of participating as the majority stockholder, with the consequent control of the governing board and direction of management, and the Government of Cuba is willing to discharge the functions of a minority stockholder, then the institution would seem to be soundly launched, the solvency and elasticity of the note issue would be assured, and the credit-giving qualities of the plan would inevitably follow.

It is worth while to note that the basic principle of the central bank system in successful operation in the great European countries, and which is embodied in the foregoing suggestion of a central bank for Cuba, was adopted in effect by the Committee of the New York Chamber of Commerce, appointed to prepare a measure for banking and currency reform in our own country, in a report approved by the Chamber on November 1, 1906, and again in effect, by the National Monetary Commission created by the Aldrich–Vreeland Act, whereof the late Senator Nelson W. Aldrich was Chairman, in the famous Aldrich plan, the product of four years extensive investigation, submitted to Congress by that body. Of vital importance to Cuban business and financial interests is the elastic note-issue circulation, for which the plan outlined provides, whereunder is vouchsafed an ever available supply of credit money in times of normal and abnormal conditions, the volume of which is subject to expansion and contraction, in accordance with the needs arising from prevailing commercial and industrial conditions at any given period.

I am familiar with the contents of a report which Mr. Oscar Wells, the American expert to whom I have already referred, has made to the President of the Republic of Cuba upon his request, and concur in the general statements therein, particularly as to the argument in favor of the soundness of American participation for the use and benefit of Cuban economic conditions, and the belief in its effectiveness to the Government of the United States in ultimately planting a Republican Government on the Island of Cuba.

That such an institution as the central bank herein proposed would, under competent management and proper statutory safeguards, [Page 789] prove a bulwark of solvency to Cuban business and industry in times of financial stress, is believed to admit of little doubt, in the light of the experience of other countries, and the existing conditions in Cuba.

Respectfully submitted,

E. H. Crowder
  1. Foreign Relations, 1920, vol. ii, p. 52.
  2. Correspondence with the Department not printed.
  3. Correspondence with the Department not printed.
  4. See telegram no. 26, Feb. 11, from the Representative on Special Mission in Cuba, p. 797.