The Birmingham age-herald., 1915-05-13

the federal reserve act from it's broadest viewpoints. but shall confine myself to certain phases of it's operation that are and in endeayoring to stress some of the benefits of the system. I shall not seek to evade a discussion of certain features to which objection has been made. particu- iarly by the smaller banks.
 The profits arising from exchange charges have always been dear to the hearts of bankers. for ethe reason that transactions against which these charges are made are quickly closed up, and in- volve no long tying up of funds. Profits from this source, however. are constantly becoming smaller, so that in the case of many banks in the larger towns espe- cially. they have so diminished, that the exchange account shows loss instead of gain I can remember the time when banks in Alabama charged a premium of 1z to 1 per cent for their checks upon financial centers. while they would buy at the same time sight drafts upon the same
 cities at the same rate of discount, thus netting clear 1 per cent. Some of these same banks are now glad to make a net
 profit of 1-10 of 1 per cent, and in many cases this profit is derived only from the purchase of bills drawn against cotton when that commodity is moving actively, or from the collection of, and remittance for, drafts drawn against shipments of goods. Theoretically, exchange may be defined as the rate at which the documen- tary transfer of funds is made, so that If the debits reciprocally due by two places be equal the exchange will be at par,
 but when greater in one than in the other the exchange will be against that place which has the larger remittances to make,
 and in favor of the other. It is customary 1 for the seller of goods to forward them
 at the expense of the purchaser. who is
 supposed to pay for them in funds current
 at the place of residence of the seller
 Practice 30 Years Ago
 Thirty years ago it was the practice for settlements to be made betweeer parties living in different towns, by drafl on New York or some other financial cen ter, by postoffice money order, or b, shipments of currency by express. In thos, days the rate of exchange was governed
 to a great extent by express rates, es
 pecially when the amount involved wal
 large. for the remitter would not pay
 bank higher rate for it's check than i |j would cost him to forward the actua funds by express Merchants would g.
 to their local bank and purchase drafts il favor Of their creditors, paying the banl the agreed premium As the business o the country developed, the local merchan gradually acquired the habit of sendin his own check, drawn upon his local banh to his creditor in New York, Chicago Q St. Louis, who would deposit the chec in his own bank. which would in turn, for ward it for payment. The local merehan found that by doing this he could avoi paying premium for a bank draft draw upon the city where his debt was due Tn city dealer found that he could, in mos cases, prevail upon his own bank to accer | his country checks on deposit withou making any deduction, so he soon becam accustomed to this method of settle | ment
 In the course of time, when many rt | mittances were being made in this wa, the burden upon the banks in the financi; centers became very great, and to prt tect themselves the credting bank woul impose charge on country checks d, posited with it, so that the cost of remi ting funds for settlement of goods pu chased had been shifted from the loc; merchant to the dealer or jobber in u cities. In many cases, however, this co | is borne by neither of the parties to u transaction, but is still absorbed by u 1 city bank which has the dealers accoun
 although there seems hardly more reasc