The citizen., 1914-01-02

vi the country exceeds the
supply OF circulating money a regional
oank can secure this new money
from the government and put it into
circulation; but a gold reserve of 40
per cent and commercial paper equal
20 tne full value of the note must be
issued.
rms provision is expected to be the
-nlI ee[Sce- ttdt- Will drive the new
money back into retirement when 1t
is no longer needed.
Clearly Explained.
Inc following analysis presents the
details Of the new law without ad-
hering closely to the technical division
OF language of the measure:
AC 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
tnese shall be expert bankers, but
none shall have banking affiliations or
own bank stock during their service.
rms board will exercise general con-
Irol over the entire system.
Inc temporary organization com
mlttee," or the federal reserve board,
VIII select from eight to twelve cities
wnere 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
VIII be required to take capital stock
of the regional reserve bank, equal to
per cent. of the member banks capi.
tai and surplus. The capital of the re-
gional bank will increase or decrease
SO 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
If 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 s4,000,000 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
ernment, or municipal bonds, and GER
tain forms of bills of exchange, are
permitted. These banks will make
kheir earnings from the loans made to
meNnber 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 onehalf of their
subscription to the capital Of the new
banks, the rest can be called for If
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 regional surplus fund, and
when this has reached 40 per cent. OF
the original banks paid in capital
these earnings are to go 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 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, If 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 5 per cent. of time deposits. Five
twelfths must be held in the banks
own vaults for two years and four