The Washington herald., 1913-06-20
ust companies are permitted to be men,

trust companies are permitted to be menu
bers.
| %. The capitalization Is to be 20 per
cent OF the capital OF the stockhnlding
banks. one-half paid In and one-half sub
ject to call.
"a The business of these Federal re-
serve banks is to be as follows:
"(a) Rediscounting OF paper presented
by stockholding banks under specified
conditions. provided such paper grows
out Of actual agricultural. commercial or
Industrial transactions, and does not run
more than a specified number of days.
"tb) Buying and selling government Sc
curities. gold and silver bullion and for
eign coin. foreign exchange. and OPEN
market bills OF given maturity.
'() Government fiscal operations.
Every national bank Is allowed to con-
tinue its note issue exactly as at present,
and In addition Federal reserve Treasury
notes are authorized to be issued to an
amount not exceeding $4,000 900. These
notes will. upon application, be issued
to the Federal reserve banks upon prime
short-time paper and other liquid col
lateral. While the notes will on their
faces purport to be the obligations Of the
United States. they are required to be
secured by a gold reserve Of % 1-3 per
cent provided by the Federal reserve
bank, and are a first and paramount
lien on all the assets of these banks,
and are redeemable in gold on demand
at the Treasury Department Of the city
Of Washington or at any Federal reserve
bank. Stringent provisions are made
against counting any of these notes as
a part of bank reserves. and the system
Is guarded against imitation by lodging
power with the Federal reserve board to
exact an interest charge upon Treasury
notes in order to insure their prompt
redemption. The notes are not made le-
gal tender. but are receivable by the
government and every bank of the sys-
tenn at par without exchange. No charge
Is made In the elements of protection
afforded existing bank notes.
Creates Reserve Board.
Overseeing the whole system is ere
eted a Federal reserve board, consisting
of seven members, including the Secre-
tary Of the Treasury. the Secretary of
Agriculture, and the Comptroller of the
Currency as members ex officio. Four
other members are chosen by the Presi-
dent of the United States. by and with
the advice and consent of the Senate,
for a term of six years each. One of the
members thus appointed by the Presi-
dent Is to be governor of the Federal
reserve board, one vice governor. and
one secretary. Their term of ONCE Is for
eight years, except that of those first
appointed one is TO serve six years. one
four. one six, and one eight years. At
least one of the members appointed by
the President is to be a person OF bank
ing experience Thus II will be noted
that the government will have absolute
control of the system. The salary of
each member of the board except the
two Cabinet officers, who are ex oficio
members. is fixed at $4,000. the Comp
troller of the Currency to receive $500.
in addition to the salary which he re-
ceives under existing law.
The powers OF the Federal reserve
board are as follows.
"(a) To examine at its discretion the
account and books Of each Federal re-
serve bank and to require such state
ments and reports as 1t deems neces-
sary.
'(b) To require. or on application to-
permit, a Federal reserve bank to re-
discount the paper Of any other Fed
eral reserve bank.
"(c) To establish each week, or as
much oftener as required, a rate Of dis
count which shall be mandatory upon
each Federal reserve bank and for each
class OF paper. provided that said rate
OF discount need not be uniform for all
Federal reserve banks, but shall be made
with a view to accommodating the COM
merce of the country and promoting q
stable price level.
subtreasury System lad.
TT is believed that the present sub
treasury system is unsatisfactory.
clumsy, injurious to business. and DIFF
fcult to manage in times of stress The
bill, therefore, provides for:
81. The placing OF all current funds OF
the Treasury in Federal reserve banks
and the payment OF government credi-
tors by check thereon.
''2. The equalization of the public funds
between the different reserve banks by
of the Secretary Of the Treas
ury, and subject to a rate of interest to
be fixed by the Federal reserve board.
%. The trust funds of the Treasury are
to be held as at present in the vaults Of
the Treasury.
Under the terms of the BILL the Fed
eral reserve banks. after the payment
of all expenses and taxes, are entitled
to pay an annual cumulative dividend Of
5 per cent on paid-in capital to its stock |
holding members. One-half the net earn |
ings of the bank must be paid into the |
surplus fund until said fund shall
amount to 20 per cent of the paid-in |
capital of the bank. The remaining one |
half of the banks earnings shall be |
paid TO the United States, and whenever |
and SO long as the surplus fund of each |
Federal reserve bank amounts to 30 per |
cent of the paid-in capital, the share |
holders having received their permissible |
dividend of per cent, all excess earn |
ings shall be paid to the United States /
Every Federal reserve bank Is exempt /
from Federal, State, and local taxation.
except in respect to taxes upon real
estate.
In the belief that the present re-
serve system is antiquated and I'M
that the massing of funds
n New York and other financial CEN
ers, of which so much has been said
n recent years. is largely due to the
present reserve requirements of ma
ional banks. and that in order to get
he real benefit from the system of re-
iiscount which has been proposed as
remedy for many existing evils IL
s necessary to base such system upon
IN actual control of reserves, provi-
Ton has been made for recasting the
present bank reserve system. The
,lan includes:
/. The transfer of reserves from ex-
sting national banks in reserve and