Reserve Banks
FEDERAL, a system of Government banks to act as a institutions during periods of financial disturbances. The discussion of Government support of private financial institutions came as a result of the financial panic of 1907, when through the popular vate banks were forced into the hands of distrust of depositors hundreds of private banks were forced into the hands of receivers, not through lack of a sound economic basis, but through inability to liquidate their assets in time to meet the runs of depositors, clamoring for their funds. The idea behind the Federal Reserve Bank was to give confidence to the people in the private banks by placing the financial strength of the Government behind them, thus assuring the deposit ors of the financial safety of their savings.
The Federal Reserve bank was established by an Act of Congress, finally passed on Dec. 23, 1913. By this law the country was divided into Reserve Bank districts, in each of which was established placed in each of the following centers: tablished a reserve bank. One was Boston, Mass., New York City, Philadel- Ga., Chicago, St. Louis, Minneapolis, Kansas City, Dallas, Tex., and San Franitory for the national banks of its district, each of which subscribes stock to the extent of six per cent. of its paid-up capital and surplus.
State banks also capital and surplus. State banks also pants in the plan, provided that they are willing to submit to certain conditions a reserve bank. One was imposed as to the amount of their reserves, etc.
Each Federal Reserve district bank is governed by nine directors; three representing the national banks to this trict, three representing agriculture, industry and commerce in general, and the rest representing the Government, being appointed by the Federal Reserve Bank Board, in Washington, D. C. This latter body controls the whole system and consists of the Secretary of the United rency, ex-officio, and five members who are appointed by the President, subject to the approval of the Senate. mobilize the finances of the country as to act as a reserve in any part of the coun- The functions of the Board are to so try where private banks may be threatened by a panic. The very existence of the system, however, acts as a deterrent on through the Secretary of the Treasury, who has the power to place Government any such threat. This is done gold reserves at the disposal of any of the district centers, where the national banks may quickly rowing from the reserve banks. Aside time securities or investments by bor- banks may quickly realize on their longkly realize on their longfrom this, any individual bank in temporary difficulties on account of a sudden run of depositors is able to utilize the reserves of other banks, through the district bank, and is in no danger of bedistrict bank, and is in no danger of begages, on which the loans may be quickly made. Through the reserve banks, also, common a practice in European countries, is in this country becoming more common, and banks are able to utilize ments by utilizing them as a form of currency. National banks participating in the plan are also able to issue notes on their gold reserves to the extent of 40 per cent.
On Oct. 17, 1919, a report of the Board dition of the Federal Reserve Bank to be in Washington showed the financial conas following:
Total gross deposits Government deposits Gold reserves Capital paid in Government deposits $2,128,000,000 85,000,000 133,000,000 2,958,000,000 6,161,000,000 lation amounted to $2,752,000,000, and Federal Reserve Bank notes in circu- Federal Reserve Bank notes in circu tional banks amounted to $249,000,000. which a large quantity of water is stored.
A vast system of reservoirs, called