The state herald., 1914-01-02

| " So"uoI anu supervision over the /
entire system.
days; provided. that notes, drafts and
bills drawn or issued for agricultural
purposes or based on live stock and
having a maturity not exceeding sig
months may be discounted In an
amount to be limited to percentage
OF the capital Of the federal (regionaD
reserve bank, to be ascertained and
fixed by the federal reserve board"
The elastic" Element.
| The new treasury notes. which arc
to furnish the elastic" element in tho
currency system, and to add to the
country's circulating money In time Of
need. will come into use In the follow.
ing way:
The notes will be printed by the gov.
ernment, with distinctive style for
each regional reserve bank One of
the three directors named by the fed
eral reserve board for each regional
bank will be known as the federal re-
serve agent" for that bank, and a sup
ply Of the notes will be placed In his
/
custody.
Should a regional bank desire to
pay out more money than its cash re-
sources will permit. the law provides
that 1t may put some OF It's rediscount.
ed commercial paper into the hands
OF the federal reserve agent" and re-
ceived In return the new treasury
notes.
For each note that II puts out into
circulation. the regional reserve bank
must set aside In gold 40 per cent Of
the value of the note as a guarantee
for Its redemption. This gold, with
the commercial paper held by the
federal reserve agent" is the pro-
lection behind the new money; but
these notes will also be guaranteed by
the government and may be redeem.
ed In gold In the United States treas.
ury.
Reserve Required.
Each regional bank. under the act,
must keep a reserve OF IS per cent. OF
the deposits II has received. besides
the 40 per cent gold reserve behind
the treasury notes II Issues. II the
! gold reserve behind the notes falls be-
low 40 per cent. heavy tax Is i'm.
posed on the bank. which In turn adds
the tax TO the rate II charges member
banks for rediscounts. This was de-
signed TO stop an over-expanslon OF
currency. In times OF sudden stress
the federal reserve board can suspend
these reserve provisions. In order to
furnish quick relief to any commu.
nifty.
| One regional bank cannot again pay
out the notes OF another. except under
heavy tax, These notes are expect.
ed TO return to the regional banks and
be withdrawn from circulation whea
the need OF their use passes.
Take UP Bonds.
None OF the existing forms OF cur.
rency except the national bank notes
will be disturbed by the new law. The
United States bonds, now used to So
cure the Issue OF ..ational bank notes,
are to be taken up at the rate OF s25..
100000 year by the regional re-
serve banks and new treasury notes
or short term three per cent bonds
will take their place. National bank
currency IN expected gradually to re-
tire.
The federal reserve board will exer.
else final control over tho entire op.
GRAFTON OF the system. Il can compel
one regional bank TO loan TO another
In time OF need. can suspend all re.
s,rlctions surrounding the reserves
which regional banks must hold. and
can remove directors OF regional re-
serve banks whenever II is believed
necessary.
Banks In Control.
While the banks retain control OF
the boards OF tho regional reserve
banks. their connection with the fed.
cral rcscry. board ID only through
an advisory council. made up OF one
representative from each federal re
serve district This council will meet
In Washington TO confer with the fed.
cral reserve board "on general busi.
meas conditions" and to make recon.
mendations and suggestions concern.
Ing discount rates, note issues, and rc-
serve conditions.
An important change In national
banking methods embraced In the new
low will permit all national banks or.
cept those In Now York, Chicago aud
II Louis to make direct loans on f,vs
year farm mortgages up TO 2b per cent
OF their capital and surplus. or up to
one.third Of their time deposits,
Another provision In the law per
mits national banks having n capital
OF Si.ooo.ooo or more TO open foreign
branches. Similar authority IN given
to the regional reserve banks. tho pur
pose boinL to facilitate the develop