Evening star. [volume] (Washington, D.C.) 1854-1972, 1914-08-19

with reserve agents In reserve and cen
trail reserve cities. It might elect to
keep this 5000 In a reserve city bank
with a total Of 100000 in deposits.
This reserve city bank. under the old
law. would have to keep a reserve Of at
least $4,000, OF which s125,OOO would
have to be in its own vaults. The re-
naming $125.OOO might be deposited
with some central reserve city bank.
Thus. the country bank would hold 40
per cent Of its required reserves In Its
own vaults, putting the remaining 60
per cent to work: the reserve city bank
would retain % per cent Of the deposited
reserve. and the central reserve city
bank would hold 2s per cent Of the re
meant by the pyramiding Of reserves.
theoretically, the reserves Of the courl-
try and reserve city banks were to be
had on call; in times Of stress, however,
1t has never been found possible IN
serve city banks to effect return Of
their deposited reserves. This condition
has favored the rapid spread OF financial
panics.
In theory. the great banks of the CEN
trail reserve cities, with their hundreds
serves, were to be the reservoirs to
which in times Of need the country and
the reserve city banks might turn. The
case has been otherwise In practice.
however: for. instead of being elements
of safety. the central reserve city reser.
voirs have too often proved elements OF
danger.
The central reserve city banks have
seldom held more than the required re-
serve Of % per cent against their depo s.
work, with a result that the reserves
of the country Ind other cities have
been tied up in enterprises financed by
the central reserve cities, and, 80. nave
served to little purpose in periods OF ur.
gent money need. The outbreak OF
financial disturbances In q central re-
serve city has often been q signal OF
coming distress throughout the country.
~
The old system was not productive Of
central reservoir Of money, but Of great
central cita-
New Regional System dels of invest
to Correct Weakness. not stable, but
topheavy. It did not marshal the reserves
Of the country for the use Of the country,
but it concentrated them in overgtown
private investment markets. While 1t
worked well in normal times. in times OF
disaster It had in 1t more Of menace than
OF security.
The new regional system corrects this
weakness. The reserves Of the country
are to be held in great part by the re-
serve banks, institutions restricted from
entering as direct competitors of member
banks into the general investment mar
ket These banks are to hold the reserves
Of the country In twelve different sections,
and these reserves are to be held with the
principal object Of offering reliable In
vestment market to member banks in dis
tress BY the new system the reserves OF
the land are to be welded into manageable
groups and made available.
The new system Is to give stability and
resistance to the banking fabric Of the
whole country. 1t will, likely. receive a
baptism Of fire. It Is being hurried into
operation to meet one of the sternest con-
tingencies forced upon the civilized world
since the stormy days of the French rev.
olution and Napoleon. Its national serv-
ice is beginning at a time when one OF
the most dreadful wars of history threat
ems to prove of enormous indirect loss.
One Of the nations financial experts has
estimated that the loss of revenue alone
to the United States on account Of the
war will total $1,000. 600. 900. Other esti-
mates Of our total loss place the amount
well over the five-billion mark, although
the hope is expressed that by the aid OF
a skillful direction of our modern bank
ing system the threat of loss may be
turned into a lasting financial triumph
for the United States.