Newark evening star and Newark advertiser. [volume] (Newark, N.J.) 1909-1916, 1913-10-28

funds that are not required for active
use by their owners at the service OF
those who can make use of them in
business. Frequently borrowers do
not even require the money, but
merely the right to draw checks on
the bank. For this privilege they give
their notes and receive a credit de-
post in return from the bank. Our
credit structure is so developed that
the greater part of our bank deposits
is created by loans from the banks
rather than by deposits in the banks.
When checks drawn against a bank
are deposited by some other person
at the same bank only a bookkeeping
entry is necessary to complete the
transaction, and nosmoney passes Ii
the checks are deposited in another
the deposit of checks drawn against
other banks. There again, only book
keeping entries take place and no
money passes. Some specie is certain
to be drawn out of a bank every day,
but it is largely offset by the deposit
of specie. A bank may do large
business with a comparatively small
amount of money on hand"
yet, isn't it absolutely necessary
for a bank to have a large sum of
money on hand for emergencies?
Certainly. This is q necessity be-
cause of the banks duty to supply
the money on demand of depositors
The amount of reserve money re-
'quired to be kept on hand varies from
time to time and place TO place. For
instance, in most foreign countries
the amount is left to the discretion
of the banker. Such a condition is
impossible in the United States be-
cause of the great number of banks
and the fact that under our free
banking system persons without
banking experience may establish
banks. Thus minimum reserve re-
quirements have been fixed by law.
differing according to the location OF
the bank.
Provisions of Old Law.
Under the present law there are
three cities, New York, Chicago and
st. Louis, known as central reserve
Cities and forty-seven reserve cities
National banks outside the reserve or
central reserve cities are known as
country banks. The country banks
are required to hold Is per cent. of
their aggregate deposits as reserve
and those Of reserve and central re
serve cities are required to hold 20
per cent These legal reserves may
consist of gold silver, gold and silver
certificates, United States notes,
treasury notes and clearing house
certificates, evidencing the deposit of
gold.
Country banks must keep money in
one or more of these forms in their
vaults to the extent of two-fifths of
the Is per cent legal reserve required
OF them. The balance OF their legal
reserve may be in the form of a credit
balance with one or more national
banks situated in reserve or central
reserve cities. The central reserve |
city banks must keep all of their re-
duired reserves in cash in their own |
vaults. Reserve city banks must keep |
one-half of their legal reserves while |
the remainder may consist of credit
balances with banks situated in CEN |
trail reserve cities. 1t is easy to see
that the loaning power of national |
banks is limited by the amounts of |
their reserves. in other words when |
the amount of legal reserve Is about |
as low as the law allows, bank can
not extend new credit accommodations |
until it shall have replenished its re-
serve"
How is it that so much of the
money centres in New
York;"
Under the present law banks in all
sections of the country have developed
the custom of keeping balances for re-