The Richmond palladium and sun-telegram., 1919-05-23
Treatise Federal Reserve Banking System High School Pupil
Eyokes Favorable From Experts Financial Affairs

The following treatise on the Federal
Reserve Banking system was written
by Eugene Murray of the Cfvics class
of the Richmond High school directed
by 8. d. Neff. While number of
pupils have done exceptionally good
work, this article by young Murray II
held by persons conversant with the
Federal Reserve Banking system
being remarkable and tribute to the
youths understanding of the scheme.
The Federal Reserve Act was the
result of various attempts at banking
reform. The National Banking Act of
1853 provided. briefly. for government I
supervision OF banks issuing notes |
This supervision was vested In a bu- |
reau of the Treasury Department, un-
der. the direction of the Comptroller
of the Currency. The Act provided
for the granting of charters, minimum
capital, requirements of boards OF di-
rectors and of stockholders; and 1t
gave to the national banks the power
ID to receive deposits. (2) to issue
notes, (3) to- lend credit on personal
security, (4) to discount notes. In or
der to become member of the sys-
tenn a bank had to deposit with the
United States Treasury, government
bonds equal to one-fourth of its cap
ital, If It was below two hundred thou
Band dollars. or Fifty thousand dollars
II the capital was over twn hundred
thousand dollars. In return for this,
the bank might issue national bank
notes up to the value OF the deposited
bonds. Any bank that chose to issue
these notes had to maintain in the
treasury a redemption fund equal to
five per cent of these outstanding
No honlinO CuCton1
had faults, being, among others, lack
OF unity in the system, lack of control
over the money market, and inelastic-
ity. A perfect currency must be elias
tic, that Is, capable of expansion and
contraction to meet the varying needs
of business, Notes really could be
issued and retired, but the process
was so slow and formal that when the
change was. effected, the need was
past.
AIdrlch-VreeIand Act
The Aldrich-Vreeiand Act, which be-
came effective May 80. 1908, and was
TO expire June 80, 1914, provided for
the formation of currency associations,
and for the issue of emergency circu-
lation. This act, which was extended
to June 80, 1915, by provision in the
Federal Reserve Act, proved extreme
ly valuable In the financial crisis Of
1914 caused by the outbreak Of the
war.
In 1912 the attention OF the public
was drawn to banking reform by the
report OF the National Monetary Com
mission, which planned to establish a
banking association with central
= bank at Washington. The result of
this agitation was the Federal Reserve
Act of December %, 1913. 1t provides
for a system Of twelve coordinate
banks under the control of the Federal
Reserve Board. The United States is
divided into twelve Federal Reserve
Districts, In each of which there is a
Federal Reserve City containing a
Federal Reserve Bank. These cities
and the serial numbers of their re-
spective banks are: ID Boston, (2)
New York, (3) Philadelphia. a. Cleve-
land, t5) Richmond, (6) Atlanta, CD
Chicago, 2(S) st. Louis, (9) Minneapo
lis. (10) Kansas City, III, Dallas
(12) San Francisco. Every national
bank must subscribe an amount equa
Z to six per cent of its capital and sur
plus to the capital stock of its reserve
bank. State banks which elect to
join under certain conditions mus
subscribe the same percent The earn
ings of the reserve banks are dis
tributed as follows: % after paymen
of expenses the stockholders receive
a six per cent dividend; (2) one-hal
of the remainder goes to a surplus
fund until it shall amount to forty pc
cent Of the capital; (3) the remainde
goes to the government.
Each Bank Has Board
Each reserve bank is under tn
3, control of board of nine directors, d
vided into three classes. Class A
composed of three men Representing
the member banks; Glass B, three me
representing commerce, agriculture @
other business; Glass C, three me
representing the Federal Reserv
Board. Glasses A and are chose
by the member banks Class c Is al
pointed by the Federal Reserve Boart
One member of Glass C. Is desi]
mated as Federal Reserve Agent an
is chairman of the board of director
Each reserve bank has governor wh
is the active manager.
General supervision and control ,
the system is vested in the Feder
Reserve Board, consisting OF seve
members. The Secretary of the Trea
ury and the Comptroller of the Gu
rency are eX-officio members. tt
other five are appointed by the Pre-
ident with the consent of the Senat
The Secretary of the Treasury is chai
man of the board. The Comptroller
the Currency receives annually sevt
thousand dollars in addition to
regular salary The five appointt
members receive twelve thousand dt
lars each annually and they serve t
wears, one retiring every other yea
Two of these five are designated
governor and deputy governor. tt
governor is the active executive offic
of the board.
Twelve men, one elected by each
serve bank, compose the Federal A
visory Council, which can confer wi
the reserve board about financial m;
ters and can make general reco
mendations The action of the coun
is advisory only, for it has no actu
control
Comptroller On Board
The Comptroller of the Currenc
who has charge of enforcing the
tional Banking Act, is also memb