The Madison journal. (Tallulah, Madison Parish, La.) 1888-current, 1914-01-03

gional bank and OF the government.
II the demand for currency in any
section of the country exceeds the
supply of circulating money a regional
bank can secure this new money
from the government and put 1t into
circulation; but a gold reserve of 40
per cent and commercial paper equal
to the full value Of the note must be
held as a reserve behind each note
Issued
This provision Is expected to be the
influence that will drive the new
money back into retirement when 1t
is no longer needed
Clearly Explained.
The following analysis presents the
details of the new law without ad-
herring closely to the technical division
or language OF the measure:
At the head of the system will stand
a federal reserve board at Washing
ton, appointed by the president, and
to consist of the secretary Of the
treasury. the controller of the curren-
cy and five other members. Two OF
these shall be expert bankers, but
none shall have banking affiliations or
own bank stock during their service.
This board will exercise general con-
troll over the entire system.
The temporary organization com
mittee." or the federal reserve board,
will select from eight to twelve cities
where regional reserve banks shall be
located and will divide the entire
country geographically with these
cities as the centers of districts. All
national banks in a district will be
required to subscribe for the stock of
the regional reserve bank in that dis
trict and to keep a portion of their
reserve there.
Known as "Member Banks"
Local banks will be known as mem
Der banks" because they will own the
stock of the regional reserve bank
of their district. Each member bank
will be required to take capital stock
Of the regional reserve bank. equal to
per cent. of the member banks CAPT.
tai and surplus. The capital of the re-
sgional bank will increase or decrease
80 that it always represents per
cent. of the combined capital and sur
plus of all the banks of the district
that have joined the system.
National banks are compelled to
join and state banks are permitted to
II they bring their reserve require
ments up to the standard set for ma
tional banks and submit to national
examination.
Public Can Buy Stock.
Public ownership Of the stock of the
regional reserve banks Is permitted
only in case enough banks do not join
in any district to provide a capital
stock for 100000. In such event the
public may purchase the stock in
quantities limited to $4,000 for each
individual, but the voting of this stock
will be placed in the hands of govern
ment representatives on the board of
directors of the regional reserve bank
The regional reserve bank may do
business only with their member
banks, not with the public, except that
certain open market operations" such
as the purchase and sale Of gold, gov
eminent, or municipal bonds, and GER
tain forms of bills of exchange, are
permitted These banks will make
their earnings from the loans made to
member banks, and from the purchase
and sale Of bonds and foreign bills Of
exchange
Must Pay Up Cash.
Member banks will be compelled to
put up in cash only one-half of their
subscription to the capital of the new
banks, the rest can be called for II
needed by the regional bank. Divi-
dends of per cent. will be paid on
this stock to the member banks. and
the stock will be non-taxable.
After these dividends are paid one
half Of the surplus net earnings goes
to create a regional surplus fund, and
when this has reached 40 per cent. Of
the original banks paid in capital
these earnings are to 90 into the
United States treasury. The balances
of the net earnings are to be paid to
the United States as franchise tax.
With the machinery thus created
for a new banking system that Is sup
Elementary to the commercial banks
Of the country, the law provides for a
gradual transfer of part of the bank
reserves to these new reservoir"
banks.
In order not to disturb business con-
ditions, or to withdraw too suddenly
the heavy deposits of country banks in
the large cities, the law provides that
three years may be consumed In shift
ing these balances and that, II neces-
sary, part Of the reserves transferred
to the regional banks may consist Of |
commercial paper.
Reserve Required.
The amount Of reserve required |
from every bank under the new law, |
and the place where 1t must be kept, |
are as follows
Country banks.-Total reserve requir- |
ed. IL per cent. of demand deposits
and per cent Of time deposits. Five
twelfths must be held in the banks |
own vaults for two years and four
twelfths after that. For the first year
two-twelfths must be kept in the re-
gional bank. increasing one-twelfth |
each six months thereafter until it |
reaches five-twelfths Of the total re- |
serve. For three years the unallotted |
part of the reserve may be kept in |
hn No.