Manchester Democrat. [volume] (Manchester, Iowa) 1875-1930, 1914-11-18
NEW BANKING SYSTEM BEGINS.

q NEW BANKING SYSTEM BEGINS.
u The twelve federal reserve banks
authorized under the new Federal
Reserve Act opened for business on
4 Monday of this week. The country
4 is entering upon a new era in it's
economic life. The law was de-
signed to remedy the defects Of the
old system and correct the abuses
+; which grew out Of it. A system of
h banks has been created which will
to great measure prevent bankers
panics and the consequent sudden
ii contraction of credits.
As explained by the statesmen
: who planned it, the new system does
two things: 49,. e.
y n First, it provides elasticity to the
currency-that is. it furnishes a
4 means for turning credit into cur:
J rency when needed. ,s''5 -.
Second, it provides new scheme
Of bank reserves intended to pre-
vent the drift Of reserves into New
York and the stock exchange.
& The reserve banks deal with the
member banks only and not with the
4 public direct. If the local banker
needs more cash to accommodate the
demands of his customers he can
! obtain it upon the assets held by
the bank. that is, notes due from
I business men. These ;promissory
notes, running for ninety days. tax
EN- by the local banker, are by him
turned over to the reserve banks,
and he receives for them currency
I which he loans to his patrons. BY
thus providing a quick and sure
I means for turning credits into cur
srency il is expected that currency
wiz come out freely intresponse to
I demands for it. ss3ss" = y. ~ ) ::
The second important thing to be
accomplished by the new banking
Law s an entire change in the
scheme by which national banks
shall keep their reserves. ~s .~..
Under the old system, for every
one hundred dollars you deposited in
I a bank, under the law the bank was
required, if a country bank, to keep
Is per cent in its vaults to meet
current daily demands for the tran
saction Of business. It. might loan
out the other IS, but it had to keep
on hand Is to respond to local re-
quirements. But, unfortunately, the
! law went further and directed the
country bank to deposit SO of that
'$15 reserve with the banks Of the
so-called reserve or central reserve
cities. II. with the bank Of a re- /
serve city, it, in turn, might deposit
!d2 per cent 5of the amount with the
banks Of the central reserve city,
sd, in reality, instead Of having a
reserve Of IS per cent in the coun-
try bank, we had reserve OF four
and hree-quarters per cent.
What was kesresult Of that sys-
TEN The result was that when
trade was slow and business slack,
there being no demand for curren-
cy. the funds Of the country banks
gradually found their way into the
vaults Of the great banks of New
York City, where they were thrown
into the maelstrom of stock specula-
ton. They: should have been kept
in the vaults OF the local banks,
ready to respond to the business
requirements Of the local section of
the country. y .%%t%. x s@
s$ Illustrating this practices. On the
18th day Of March Of this current
year the country banks of the Unit
ed States had on deposit with New
York City $685., 100000. whereas the
country banks were indebted to New
York City only to the extent Of $751;
900. 900. X .,3 !, s..g5sst:y !,
There is q current notion that
the country; banks depend upon the
great banks OF New York for mon
,ey to do business, AS matter Of
fact New York depends on the
country banks for money with which
ito speculate. The new law changes
all this. s. ~. G".,l,.
Under the new system. it is pro-
posed to keep the reserves at home;
to- keep money where it originates,
where business creates it, so that,
when it is required, it can help bust
ness and respond to business de-