Reserve Banks

Collier's New Encyclopedia (1921)

FEDERAL, a system of Government banks to act as a stabilizing influence on private banking 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 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 a reserve bank. One was placed in each of the following centers: Boston, Mass., New York City, Philadelphia, Cleveland, Richmond, Va., Atlanta, Ga., Chicago, St. Louis, Minneapolis, Kansas City, Dallas, Tex., and San Francisco. Each of these acts as a depository 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 have the privilege ge of becoming partici pants in the plan, provided that they are willing to submit to certain conditions 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