The Richmond palladium and sun-telegram., 1919-05-23

quire some other reserve bank TO
rediscount some paper for such bank
and thus build up its reserves. the
board may also fix the discount
rates for the various banks.
This, of course, will raise protest
from the reserve banks Disseminated
against, but the board must exercise
Its power wisely for the best interests
Of the country as a whole.
The reserve banks have two meth
DDS OF controlling the market rates OF
interest; by raising or lowering the
rates Of rediscount, and buying or
selling securities and commercial pa
per. If they lower the rediscount
rates, the market rates must neces- /
sarily fall. If, on the other hand, they
raise the rediscount rates, the market
rates will be forced up II the banks are /
actually rediscounting. II the banks
have ample resources and are thus
able to ignore the new rates, then re-
course must be had to the second |
method. When the reserve banks sell
their securities and commercial paper,
the amount OF money available Tor
loans is diminished. II the reserve
banks have enough paper to sell, they
can force the banks to rediscount at
the raised rates. By the regulation OF
the market rates of interest, the IN
flow and outflow OF gold can be con-
trolled.
TWO Kinds Of Notes
Under the Federal Reserve Act, the
reserve banks can issue two kinds OF
notes. One kind is Federal Reserve
Bank notes, which are issued under
practically the same conditions as nat
ional bank notes. The other kind is
Federal Reserve notes, which are elas-
tic. This characteristic eliminates the
chief objection to the old national
banking system. Reserve banks will
exchange these notes for commercial
paper presented by the member banks,
thus making the notes capable of ex-
pansion. The reserve notes are obli-
cations not only of the reserve banks,
but also of the government. Each re-
serve bank must deposit with it's Fed
eral Reserve Agent commercial paper
equal to the outstanding notes. The
secretary of the treasury requires each
| bank to keep in the treasury enough
gold for the redemption of outstand-
| ing notes, in no case less than five
percent of the notes value. The con-
traction of reserve notes is not so well
provided for as the expansion. Re-
serve notes coming into the treasury
or into the reserve banks are retired
| Immediately, but those in business
may be outstanding many months. A
method Is for the reserve board to
force the redemption of the collateral
deposited for security. by refusing to
accept new collateral from the re-
serve banks, in place of that maturing.
Each reserve bank must maintain a
forty percent gold reserve against re-
serve notes outstanding. However,
the redemption fund deposited in the
Federal Treasury may be counted in
on this This and the thirty-five per-
cent reserve against demand deposits
may be suspended in extreme cases
by the reserve board, by imposing a
deficiency tax.
Provision Is made for the gradual
retirement of national bank notes. AT
any time before December %, 1885
any national bank may retire it's notes
The reserve banks may be compelled
by the reserve board to buy the bonds
thus released That part Of the Nat
ional Banking Act which required nat
ional banks to purchase a certain
amount of United States bonds is re
pealed. A national bank now does mo-
have to purchase bonds, unless it de
sires to issue notes.
Act AS Clearing House
!, The reserve banks also act as clear
ing houses, where all checks agains
member banks are accepted at par
r This feature abolishes the old custom
; of charging an exchange" on the re
/ n Yf{ nf he
/ of clearing is assessed against tn
2 member banks in proportion to tn
! number of items cleared Membe
) banks, by depositing checks agains
e other banks, by shipping currency O
f by rediscounting. can maintain 1
J. their reserve banks funds out of whic
n to pay their checks. The advantage
S of the clearing plan are: a. promp
8 presentation Of checks, (2) reductio
e in the expense of collection, "a tn
/ release Of the large balances whic
h had to be maintained in the larg
Il cities by the smaller banks in orde
e to receive par collection. The disat
J. yantages are: "a loss of exchang
e by the smaller banks. which exchang
3 they have deducted in remittin
n checks on themselves, (2) revisio
q and termination of the reciprocal r
n lations which have existed betwee
n the smaller banks and their corr
1 spondents in the large cities. Consi
ering the question from a bushes
+ standpoint, the advantages great
"a outweigh the disadvantages. The r
serve board acts as a clearing hous
-. for the reserve banks Each resery
- bank must maintain a million doll;
: gold settlement fund under the contr
- =, of the reserve board. Weekly repor
= : are made to the reserve board, sho1
= ing what each reserve bank owes e
- cry other reserve bank, and Il
- amounts are entered on the books
~ the gold settlement fund
= The Federal Reserve System max,
y US panic-proof nation, because al
As member banker, anticipating run
70 his bank, can obtain Immediately al
ie amount of money necessary to til
CT him over the crisis. The value of IL
,e Federal Reserve System In meetil
IS the industrial demands Of our wa
al time prosperity has been tremendou
IN It will see US safely through the chan
e- ing demands of reconstruction.
rd 1t has helped us in the past, SO W
n 1t stand by us In the future. The Fe