Saturday news. (Watertown, S.D.) 19??-19??, 1914-01-01
Its Purpose is to Take Up Slack During Changing
Conditions Each Year, to Enable Banks to Convert
Assets Into Cash With Least Possible Friction

Washington, Dec. 31.-The admins
tration currency law is one of the
most far-reaching measures relating
to finance that has been enacted ir
many years. Generally speaking, the
first steps to be taken to bring into
operation the nations new financial
system will be through an organiza
tion committee, consisting of the Sec
retary of the Treasury, the Secretary
of Agriculture and the comptroller Of
the currency. Banks have sixty days
within which to file their applica.
tions for membership in the new
system; and one years time is al
lowed before the government will
compel the dissolution of any national
bank that refuses to join.
The new law will make little direct
change in the operation of the present
national banks, except to allow them
to lend a certain amount of their
funds upon farm mortgages. It's chief
purpose is to add new piece OF ma,
chinery to the banking system that
will take up the slack" during the
changing business conditions of each
year; that will give the banks place
to convert their assets into cash
quickly in time of need, and that will
bring out new federal currency, when
it is needed, and retire it when money
becomes cheap"
a Reserves Give No Relief.
Banks are now required to keep d
certain percentage of their deposits
as reserves" part in cash in their
own vaults and part of which may be
redeposited in the banks of New York,
Chicago. st. Louis and other desig-
mated cities. In times OF sudden
financial demands when banks have
lent up to the full amount of their
resources, these reserves furnish little
relief, because if they are paid out
to meet demands, the banks are left
in precarious condition.
The basic principle of the new law
is to get these reserve funds out into
circulation when necessary without
lessening the safety of any bank; and
to provide a place to which local
banks may rush In a crisis and get
cash for the prime commercial pa
per" they hold in their vaults.
Reservoirs of Reserves.
This is to be accomplished through
chain of regional reserve banks, or
reservoirs of reserves in which all
banks shall deposit stated part of
the money they are required to hold
as reserves. Under the new system
whenever financial furry comes the
bank can take commercial paper, such
as notes, drafts and bills of exchange
to these reservoirs and secure the
use of their own reserves. or if nee
essary even the reserve of other banks
by depositing this security
The new regional bank will receive
about one-half of the bank reserves
of the country They, in turn, will
be permitted to loan back to the
banks all but 35 per cent of these re-
serves, SO that in case of emergency
millions of cash can be brought out
into circulation quickly. The banks
will have to pay for these loans, how
ever, as individuals have to pay for
a loan from any local bank; and this
charge is expected to prevent the too
free use of the reserves held by the
regional banks
New Paper Currency.
A new form of paper currency is
also provided for. to come out in case
Of emergency, and which is expected
to go back into the hands of the gov
ernment when times are normal
These treasury notes" will be print
ed by the government, and issued
through each regional reserve bank,
and win bear the guarantee both of
the regional bank and the govern
ment.
II the demand for currency In any
section Of the country exceeds the;
supply of circulating money, a res
gional bank can secure this new mon
ey from the government and put It'll
into circulation; but a gold reserve Of,
10 per cent and commercial paper to
he full value Of the note. must be held /
IS a reserve behind each note SO is.
,ued. This provision is expected to