Evening star., 1919-09-21
FEDERAL RESERVE SYSTEM
HAS MET EVERY DEMAND
Richmond Regional Bank Has Blazed the
!, Way for Many Highly Favored and
POPULAR Innovations In Methods.

BY L. A. FLEM1NUs
During the war and since the ar
mistice, frequent comments have beer
heard commendatory of the excellent
service rendered the nation by the
federal reserve act. with not a few
expressions of wonderment as to how
the nation could have weathered the
war and subsequent financing without
its beneficent provisions.
At first bankers looked with sus-
picion and resentment at the act, fre-
Quently expressing the belief that 1t
would cut into their profits. through
insisting on large surplus being main
tanned in the regional banks; through
the loss of exchange on checks. one
of the chief sources of revenue for
many smaller banks and some large
ones.
The national banks. perforce. COM
piled with its provisions, but they
frequently expressed the belief that
their stock, equal to per cent of
their capital in. the reserve bank. to
which they belonged would never pay
them dividends.
New York bankers looked upon the
system of something that would
sieze upon their great balances for
the credit of interior and reserve city
points; the dictation of the great
banks seemed to be losing force be-
cause of the act and the country
bankers would be less liable to beg
in times of stress when assistance
was needed.
In 1907 the entire country shiDered
IN a Wall street panic, a squab bile
that destroyed banks and trust COM
panies; and enforced 2 per cent
premium on silver, the gold equiva-
lent of which had been deposited in
out-of-town banks two days pre-
viously.
In Embryo When War Broke.
When the great European confia-
grafton broke out of quiet sky the
federal reserve bill was in embryo,
but the situation was saved by the
Afdrich-Vreeland emergency currency
measure.
Scenting big profits in sales to the
allies. many business men searched
for credits and paid big rates to their
banks in turn.
The federal reserve system opened
Its twelve reserve banks on the 18th
of November 1914, and the country
Dreathed easier, just as soon as it be-
came acquainted with the great pur-
pose of the Institutions rediscounting
for meMber banks
The Richmond bank. to which local
long and earnestly over eligible pa
per-" and did not like the per cent
opening discount rate
Within two months the rate of re-
discount softened, eligible paper
seemed to be more thorouhgly under
ing was used largely and highly val
ued.
Tho fifth district, with banking
headquarters at Richmond, was ad-
mittedly not manufacturing district;
the farmer charged with extra citing
the product nf the
by the reserve law and soon became
familiar with it's workings through
the teaching of Gov. Seay and Agent
The same parties kept hammering
away at the banks in the district,
telling OF the opportunities of the
system. and thereby probably made
this the first bank Of the twelve to
reach a paying basis-the first to de-
clare 2 dividend on its stock to the
are-ho1ding banks. Red tape was
cut in familiariSing the fraternity
with opportunities.
Converted to Boosters.
II was no easy matter to convert
not a few from fanatical opponents
to boosting patrons; to conquer the
prejudices OF 500 bankers. The Rich
mond bank was visited by many bank
ers. and although the quarters were
not alluring. they saw and heard
enough to convince them of the fact
thatthe system was workable.
In the spring of 1915 Richmond was
probably rediscounting 80 to 100
pieces OF paper a day, largely farm
paper with maturities running into
harvest time.
Gradually the operations of cotton
mills were reflected: then commercial
paper made ITS appearance. New clas-
To-
were arranged for. provisions for live
stock paper discounting, commodity
paper and the trade acceptance broad
ened the field of the bank. The sys-
tenn became more generally in use
some bankers continued to pay tribute
today. ( -
As the system grew in proportions
the enormous economic loss in float
z technical term referring to the bill
Mons that are constantly floating
around in the form of checks, drafts.
etc. between banks in different cities.
This had to be cared for in some
way, and was the nub that, in its
solution, developed the collection sys-
tenn of the federal reserve banks, an
over the opposition of old-time bank
ers. but which is recognized as the
most convenient and available system
today, with all banks coming more
or less surely to avail themselves of
its privileges.
Under the legal reserve require
ments 1t IL necessary to deferentiate
Between funds actually collected
frem funds in process of collection.
The Richmond bank established the
sharpest distinction between collec-
tive and uncollective items. Any
member banker might, by consulting
. time table. easily determine on
what date a check drawn on one
place would be cashed and the pay
ment made to the Richmond bank:
thus the quickest rate. to Norfolk,
from and to Richmond, then credit
was given on checks on Norfolk after
the two days had expired; Frisco
took six days. Richmond received
the accounts, receipted for the checks
and gave the date Of availability.
Press for Direct Routing.
Richmond next pressed for direct
routing, insisting that Charleston
should mail items direct to Columbia
and vice versa, requesting acknowl-
edgement Of the account to Richmond
and the reserve bank crediting Charles
ton in the reserve account.
Elsewhere and throughout the en-
tire district efforts to lessen the
'.float" were made by this direct rout-
ing. Efforts to extend this system
into other districts were met with de-
mands for exchange charges that pre-
vented its adoption.
Richmond was ahead Of the sched-
ule, but, on the theory the saving OF
time Is a most important item, eco
nomically, it was a sound method OF
progressing-the direct interchange