Gilpin observer., 1914-01-01

| Il
entire system.
| days; provided, that notes. drafts and
bills drawn or issued for agricultural
purposes or based on live stock and
having maturity not exceeding six
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 "EIastic" Element.
The new treasury notes, which are
to furnish the elastic" element in the
| 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 regional bank desire to
pay out more money than its cash re-
sources will permit. the law provides
that it may put some of its 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 1t 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 35 per cent of
the deposits it has received, besides
the 40 per cent. gold reserve behind
the treasury notes it 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 it charges member
banks for rediscounts. This was de-
signed to stop an over-expansion 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be withdrawn from circulation when
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 $685.
000.0 900 a 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 is expected gradually to re-
tire.
The federal reserve board will exer-
else final control over the entire op.
GRAFTON of the system. 1t can compel
one regional bank to loan to another
in time of need; can suspend all re-
strictions surrounding the reserves
which regional banks must hold. and
can remove directors of regional re-
serve banks whenever 1t is believed
necessary.
Banks In Control.
While the banks retain control Of
the boards of the regional reserve
banks, their connection with the fed
eral reserve board is 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
eral reserve board ION general bust
ness conditions" and to make recon-
mendations and suggestions concern
ing discount rates, note Issues. and re-
serve conditions.
An important change, In national
banking methods embraced In the new
low will permit all national banks ex-
cept those In New York, Chicago and
st. Louis to make direct loans on five
year farm mortgages up to rs 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 a capital
of 100000 or more to open foreign
branches. Similar authority is given
to the regional reserve banks. the>pur>
pose being to facilitate the develop
ment Of American trade abroad.