The Republican. [volume] (Oakland, Md.) 1877-current, 1914-01-01

and three appointed by the federal re-
serve board.
The regional reserve banks may re-
district-that is, buy at a discount
from its member banks-"prime com
mercial paper" when the member
banks desire to convert these assets
into money.
Character of Paper.
The exact terms of this important
provision as to the character OF paper
upon which the regional reserve banks
may furnish cash are as follows:
Upon the Endorsement of any of its
member banks, with waiver Of de-
mand notice and protest by such
banks, and federal (regionaD reserve
bank may discount notes, drafts, and
bills Of exchange arising out of act
ual commercial transactions; that is,
notes, drafts, and bills of exchange is
sued or drawn for agricultural, indus
trial or commercial purposes, or the
proceeds of which have been used, or
are to be used, for such purposes, the
federal reserve board to have the
right to determine or define the char
actet Of the paper thus eligible for
discount, within the meaning of this
act.
Nothing in this act contained shall
be construed to prohibit such notes,
drafts and bills Of exchange, secured
by staple agricultural products, or 9TH
er goods, wares, or merchandise from
being eligible for such discount; but
such definition shall not include notes,
drafts, or bills covering merely invest
ments or issued or drawn for the
purpose Of carrying or trading in
stocks, bonds or other investment Sc
curities, except bonds and notes of the
government Of the United States.
The elastic" 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
eminent 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 a 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.
Each regional bank, under the act.
must keep a reserve of IS per cent of
the deposits it has received, besides
the 40 per cent gold reserve behind
the treasury notes it issues. If the
gold reserve behind the notes falls be-
low 40 per cent. a 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.
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 Sc
cure the issue of national bank notes,
are to be taken up at the rate of $780,
100000 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 it 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 "on 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 25 per cent.
of their capital and surplus, or up to
one-third of their time deposits
Naluahle Hint From Gernanu