Evening star., 1914-08-20
THE new BANKING LAW,
XVu.-Redistribution Of Re.
serves.
By Frederic ]. Haskin.

Mobilization Of the nations reserves
under the provisions Of the new law at
twelve strategic points throughout the
country IL not to be accomplished with
out serious redistribution Of money and
a significant rearransement Of our finan.
cial world. The strain Of this operation.
especially in the central reserve cities,
will very likely prove severe, a. these
centers must adjust themselves, even un-
der most favorable conditions, to an i'm
portant loss Of country and reserve city
money.
Three years are allowed by the act for
this read1ustment At the end Of this
period. all banks members Of the system
will be required to carry their reserves In
certain percentages in their own vaults
and in the vaults Of their regional re-
serve bank. with another specified per-
centage which. at their option. they may
carry In either. The establishment of
the new reserve system will probably
bring about tremendous transference Of
accounts with present reserve agents to
the reserve banks; and the dificult prob
lem presented to the reserve city and
the central reserve city banks IL that Of
their own payments to the reserve bank
of their district but. also, the payments
Of the correspondents whose reserve ac-
counts they carry.
The reserve requirements of the na-
tional bank act are lowered BY the new
log islation.
Nothing to Be Taken This does
From Safety Of Banks. 1p' i. I" sn,' =
thing is taken from the safety Of the
banks. While the legal reserves are low
er. they are probably very much strong
er In their new organisation than before.
BY way Of Illustration: under the old law.
country banks are required to keep re-
serves Of 16 per cent against their de-
posits. OF this Is per cent reserve they
might keep 90 per cent on deposit with a
reserve agent. or agents. while the 70
naming 40 per cent had to be kept In
their own vaults. In periods Of vital ne
cessity 1t was found under the old sys-
tenn that the 60 per cent Of reserves on
deposit with reserve agents was unavail-
able. leaving the distressed national bank
cent-or that part Of its required reserve
which was kept in its own vaults-instead
OF Is per cent Of Its deposits available tn
meet unusual demands.
Under the new system. q banks entire
reserve will always be obtainable. In ad-
dition to this improvement, any properly
managed member bank will be In a posi-
ton further to strengthen itself In cases
Of severe demand by the immediate dis
posal Of its investments in commercial
paper to its reserve bank. Thus, while
the reserve requirements are lowered.
the public may feel triple confidenee
that a member bank in the new system
will be able always to pay its de-
positors. whether times are bright OF
unusually troubled.
The reserve required Of the country
banks is to be reduced from Is to II Der
cent. Furthermore. distinction Is made
in the act between demand and time de-
posits. The act defines that demand de-
posits within the meaning Of this act shall
comprise all deposits payable within thirty
days. and time deposits shaM comprise
all deposits payable after thirty days.
Of deposit which are subject to not less
than thirty days notice before payment
Against their time deposits. all classes OF
member banks will be required to keep
only a 8 per cent reserve
The country banks are to shift their re-
serve aceording to six steps which are to
cover . period Of
Country Banks three years. The
l.. cI:s p. same periods and
Of years are left to the reserve city and
central reserve city banks for the accom-
plishment Of similar adjustments. Twelve